Palm Oil Advances as Recent Drop Boosts Demand, Crude Rallies

By Jae Hur

Sept. 4 (Bloomberg) -- Palm oil futures in Malaysia advanced for the first time in three days on speculation this week's price decline will boost demand and a rally in crude oil may raise the appeal for the commodity as an alternative fuel.

Palm oil slumped 6.5 percent in the past two days, the most since Aug. 26. Crude oil rose as much as 0.6 percent today after declining 6 percent in the previous five sessions in New York as Hurricane Gustav caused no major damage to platforms in the Gulf of Mexico. The vegetable oil can be mixed with regular diesel to stretch fossil fuel supplies.

``It's a technical correction in the palm oil market'' after recent declines, Merlissa Baramitha, an analyst with PT Mandiri Sekuritas in Jakarta, said.

Palm oil for November delivery added as much as 1.7 percent to 2,492 ringgit ($727) a metric ton on the Malaysia Derivatives Exchange and traded at 2,485 ringgit as of 12:10 p.m. local time.

The futures contract has tumbled 45 percent from a record 4,486 ringgit on March 4 amid concerns that global supply may exceed demand, and as funds cut commodity investments.

Consumption of palm oil, the world's most-traded vegetable oil, typically picks up during the Muslim holy month of Ramadan, which started this month, and during China's week-long Mid-Autumn Festival, also due this month.

Malaysia's palm oil exports rose 6.6 percent in August from July, Societe Generale de Surveillance, an independent cargo surveyor, estimated yesterday. Intertek, a rival surveyor, said in a separate report that exports gained 8 percent in August.

Biofuel Demand

Palm oil, the world's most-traded vegetable oil, may average 7.6 percent more in the year to June 2009 because of increased demand for biofuel, according to Thomas Mielke, chief editor of OilWorld, the trade publication.

The tropical commodity may average $1,120 a metric ton, up from $1,041 a ton the previous year, he told a conference at Siem Reap, Cambodia yesterday.

Meantime, Bursa Malaysia Bhd. said it will start offering U.S. dollar-denominated palm oil futures contracts tomorrow. The contract, called FUPO, will be cash-settled, the exchange said.

To contact the reporters for this story: Jae Hur in Singapore at jhur1@bloomberg.net