KUALA LUMPUR, July 7 :Malaysian crude palm oil futures dropped more than 3 per cent on Monday as a build-up in supplies and weakening crude oil prices weighed on the market.

Dealers said the price of palm oil, which is 22 per cent off a record high of 4,486 ringgit a ton hit in March, is expected to bounce back in the coming weeks on buying ahead of Asian festivals.

The benchmark September contract on the Bursa Malaysia Derivatives Exchange settled down at 3.25 per cent, or 118 ringgit, to 3,512 ringgit ($1,076) a ton.

We are following crude oil and fundamentals are not in favour of higher prices, said one dealer with a domestic brokerage. We foresee strong demand because of the festival season but stocks are also going to climb. Other traded months fell between 75 and 120 ringgit in overall trade of 9,830 lots of 25 tons each.

Malaysia’s end-June palm oil stocks are likely to touch 2.1 million tons from 1.9 million at end-May because of slowing demand in the last few months.

Traders in Malaysia and Indonesia expect overseas demand from China, India and the Middle East countries to pick up in July, as buyers tend to stock up at least two months before the Asian festival season that begins in early September.

Oil retreated to below $143 a barrel on Monday, taking a pause from a record-breaking rally that has lifted prices by almost 50 per cent this year. Investors were eyeing mixed signals from Iran, the world’s fourth-largest oil exporter, in its dispute with the West over its nuclear work, and a rise in the value of the dollar against other major currencies.

The most-active January 2009 soyaoil contract on China’s Dalian exchange fell by 0.61 per cent, while Chicago Board of Trade July soyaoil was down 2.02 per cent.

In Malaysia’s physical market, crude palm oil for July shipment in the southern region was quoted at 3,550/3,580 ringgit a ton. Trades were done at 3,580 ringgit per ton.—Reuters