Palm Oil Drops as Crude Tumbles on Easing Concern Over Gustav

By Jae Hur

Sept. 2 (Bloomberg) -- Palm oil declined as crude oil fell after Hurricane Gustav weakened before striking the Louisiana coast, reducing demand for alternative fuel made from vegetable oils, including the tropical commodity.

Crude oil traded near a four-month low after Gustav was downgraded to a Category 2 hurricane before crossing the coast and easing as it heads inland, reducing concern of major damage to rigs and refineries. Soybean oil, which competes with palm oil in usage for cooking oil and biofuel, fell as much as 3.5 percent to the lowest in two weeks.

Crude oil drove the palm oil market down ``and it's really a function partly of the dollar's strength that is driving oil prices and commodities lower,'' said James Gruber, an analyst at CLSA Asia Pacific Markets in Jakarta. ``Secondly, there's demand concern due to weakening economic growth globally.''

Palm oil for November delivery declined as much as 4.8 percent to 2,495 ringgit a ($729) a ton before trading at 2,511 ringgit as of 11:19 a.m. in Kuala Lumpur. Futures fell 3.5 percent last week and lost 14 percent in August, the second straight monthly drop.

The price of palm oil has fallen 44 percent from a record 4,486 ringgit on March 4. The Malaysian market was closed yesterday for the National Day holiday.

Shares Fall

IOI Corp., Malaysia's second-biggest palm oil grower, fell as much as 3.1 percent to 4.94 ringgit in Kuala Lumpur trading. Its bigger rival Sime Darby Bhd. lost as much as 1.5 percent to 6.7 ringgit.

Golden Agri-Resources Ltd., a unit of Sinar Mas Group, Indonesia's largest oil-palm grower, dropped 3.2 percent at 61 Singapore cents.

Soybean oil for December delivery on the Chicago Board of Trade was down 2.7 percent at 52.72 cents per pound after dipping to 52.33 cents, the lowest since Aug. 19. The Chicago market was closed yesterday for the Labor Day holiday.

The dollar rose as high as $1.4557 per euro, the highest since Feb. 14. Crude oil fell as much as 4.2 percent from the Aug. 29 close to $110.60 a barrel.

Malaysia's palm oil exports rose 8 percent in August, compared with the previous month, according to independent surveyor Intertek. A total of 1.49 million metric tons of palm oil exports were tracked in August, Intertek said in a report today. Malaysia exported 1.38 million tons in July, it said.

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