Palm Oil Drops for Second Day to 17-Month Low as Crude Declines

By Jae Hur and Yoga Rusmana

Sept. 16 (Bloomberg) -- Palm oil futures in Malaysia fell for a second day to the lowest in 17 months after crude oil tumbled below $92 a barrel, eroding demand prospects for biofuel made from vegetable oil.

Crude oil declined for a second day to the lowest in seven months on concern that turmoil on Wall Street may hurt the global economy and reduce demand for fuels and raw materials. Vegetable oils, used mostly in food and biofuels, often track the performance of crude.

``This is a natural consequence of demand concern,'' said James Gruber, an analyst at CLSA Asia Pacific Markets, in Jakarta. ``Deflation is the biggest risk right now for the global economy and that has a direct impact on the demand side of commodities.

Futures for November delivery dropped as much as 6.7 percent to 2,090 ringgit ($605) a metric ton on the Malaysian Derivatives Exchange, the lowest since April 2007. The contract was at 2,095 ringgit at the midday break, more than halving from the record 4,486 ringgit in March.

The drop today is ``mainly because of the decline in crude oil prices and also negative sentiment on the commodity markets that we have seen in the past weeks,'' Merlissa Paramitha Trisno, an analyst at PT Mandiri Sekuritas, said in Jakarta.

Crude oil had its biggest two-day drop in almost four years after Lehman Brothers Holdings Inc., once the fourth-biggest U.S. investment bank, yesterday sought bankruptcy protection. Merrill Lynch & Co., the world's biggest brokerage firm, also agreed to sell itself to Bank of America Corp.

China, the world's biggest vegetable oil consumer, imported 360,000 tons of palm oil in August, the country's customs office said today, citing preliminary data. Palm oil imports were 491,255 tons in July and 533,897 tons in August last year, Bloomberg data shows.

State Trading Corp., India's second-biggest government- owned trading company, called bids to import as much as 12,000 tons of palm oil. STC is seeking refined, bleached and deodorized palm olein between Sept. 20 and Oct. 10.

To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net; Yoga Rusmana in Jakarta at yrusmana@bloomberg.net