By Anuradha Raghu

KUALA LUMPUR, March 12 (Reuters) – Malaysian palm oil futures stretchedlosses into a second day on Wednesday, falling to a one-week low asprofit-taking continued to weigh, with some investors worried that higher pricesof palm oil could see key consumers switching to rival edible oils.

Benchmark prices surged to an 18-month high of 2,916 ringgit per tonne onTuesday after industry data showed that end-stocks in Malaysia, the world’ssecond-largest grower, dropped to an eight-month low of 1.66 million tonnes. Butprices later gave up gains as traders booked profits.

Market players widely expect inventories shrink further as dry weather inthe region continues to hinder palm oil production. Malaysia’s total output inFebruary was only 1.28 million tonnes, a 14 percent drop from a month ago.

“Another profit-taking day. There’s also retracement and correction in aheavily overbought market,” said a trader with a foreign commodities brokeragein Kuala Lumpur.

“Everyone knows the weather is bad, the yields are bad, and end-stocks arecoming down. That’s why the market rallied all the way from 2,300 ringgit levels… and now it’s making a correction after hitting 2,900 ringgit,” the traderadded.

The benchmark May contract on the Bursa Malaysia DerivativesExchange had inched down 1.8 percent to 2,821 ringgit ($858) per tonne byWednesday’s close. Prices had earlier dipped to 2,808 ringgit, their lowestsince March 6.

Total traded volume stood at 71,678 lots of 25 tonnes, more than double theaverage 35,000 lots.

Technicals show that Malaysian palm oil may fall to 2,764 ringgit per tonne,as indicated by a Fibonacci retracement analysis, Reuters market analyst WangTao said.

Palm prices could rise above 3,500 ringgit – a level last touched in April2012 – if the crop-damaging El Nino weather patterns return to plague oil palmplantations, leading analysts earlier warned.

The spike in prices could cause key consumers to switch to competing edibleoils such a soy, sunflower and canola oils for food and fuel use.

“The high price level has sparked off concerns on possible weaker demandfor palm oil in terms of food and biodiesel uses, as it renders palm oil’s pricecompetitiveness in relative to other vegetable oils,” said Phillip Futuresanalyst Tan Chee Tat in a note on Wednesday.

In other markets, Brent futures fell towards $108 a barrel on Wednesday asdemand growth concerns at the world’s two biggest oil consumers overshadowedfears of supply disruption with geopolitical tensions over Ukraine worsening.

In other competing vegetable oil markets, the U.S. soyoil contract for May slumped 1.3 percent in late Asian trade, while the most active Septembersoybean oil contract on the Dalian Commodities Exchange was nearlyflat.

Palm, soy and crude oil prices at 1024 GMT

Palm oil prices in Malaysian ringgit per tonne
CBOT soy oil in U.S. cents per pound
Dalian soy oil and RBD palm olein in Chinese yuan per tonne

Crude in U.S. dollars per barrel ($1 = 3.287 Malaysian ringgit) ($1 = 6.1450 Chinese yuan)
(Editing by Anand Basu and Anupama Dwivedi)

Source : Reuters