Palm Oil Gains as Mistry Says Soybean Oil's Premium May Halve

By Feiwen Rong and Thomas Kutty Abraham

Aug. 29 (Bloomberg) -- Palm oil climbed the most in more than a week after Godrej International Ltd.'s Dorab Mistry said soybean oil's premium to the tropical oil may halve, spurring buying from investors looking for a bounce in prices.

Soybean oil's premium to palm oil, the widest in more than six years, may narrow as output of palm oil peaks in Indonesia and Malaysia and a price plunge lures buyers, said Mistry, who has traded vegetable oils for more than three decades.

Soybean oil was 56 percent more expensive than the tropical oil today as measured by the most active contracts on the Chicago Board of Trade and the Malaysia Derivatives Exchange. The gap widened to 69 percent on Aug. 26, the most since at least January 2002, according to data compiled by Bloomberg.

``Demand for palm oil is bound to emerge as it is a lot cheaper,'' Alvin Tai, analyst at OSK Research Bhd. said by phone from Kuala Lumpur. ``One can make money using palm oil to make bio-fuel until palm is available at 2,900 ringgit.''

Palm oil for November delivery gained 6.1 percent to 2,620 ringgit a ($772) a ton, the most since Aug. 20. The futures fell 3.5 percent this week. The price reached a record 4,486 March 4.

Palm oil has declined 14 percent this year, while soybean oil has gained almost 10 percent after supply from Argentina, the world's largest exporter, was curbed during a four-month strike by farmers over the March increase in export taxes.

That's made crude palm oil $470 a metric ton cheaper than soybean oil, Sunaina Dhanuka, analyst at Macquarie Securities, said yesterday in a report. The gap relative to both soybean and rapeseed oils is at an ``all-time high,'' she said.

Still, prices may not exceed $1,000 a ton in the medium term due because of a favorable supply outlook, she said.

Production in Malaysia may reach 16.955 million tons, 7.1 percent higher in 2007 on improved yields and favorable weather, the nation's Finance Ministry said today in its 2008-09 economic report. Indonesia may produce more than 19 million tons this year, Godrej's Mistry said Aug. 25.

Indonesian Tender

Indonesia's state marketing center accepted bids for 8,500 tons out of 9,500 tons of palm oil offered in a tender today, Aziz Kahar, head of sales, said from Jakarta.

The center, that sells palm oil from state plantations, sold 1,500 tons ex-factory Medan and 3,000 tons free on board Belawan, both in North Sumatra province, to PT Multimas Nabati Asahan at 6,663 rupiah a kilogram, he said.

PT Bukit Kapur Reksa bought 2,000 tons from Dumai port at 6,663 rupiah a kilogram and 1,000 tons ex-franco Ophir at 6,453 rupiah, both sales in Riau province. It also bought 1,000 tons Tayan in West Kalimantan at 6,423 rupiah.

To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net; Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net