Palm Oil Falls After Crude Slumps as Storm Damage Concern Eases

By Jae Hur and Thomas Kutty Abraham

Sept. 2 (Bloomberg) -- Palm oil dropped the most in a week as crude oil plunged, reducing demand for alternative fuel made from vegetable oils, including the tropical commodity.

Crude oil fell to a five-month low after oil producers and refiners prepared to restart output from rigs closed by Hurricane Gustav, which passed the U.S. Gulf Coast without causing major damage. Soybean oil, which competes with palm oil in usage for food and biofuel, declined as much as 4.5 percent to the lowest in more than 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 slumped 5.2 percent to 2,484 ringgit ($725) in Kuala Lumpur, the most since Aug. 26. Earlier, the futures fell as low as 2,434 ringgit, extending a 14 percent decline in August, the second straight monthly drop.

The price of the tropical oil has fallen 45 percent from a record 4,486 ringgit on March 4. The Malaysian market was closed yesterday for the National Day holiday.

IOI Corp., Malaysia's second-biggest palm oil grower, fell 2.4 percent to 4.98 ringgit in Kuala Lumpur trading. Its bigger rival Sime Darby Bhd. lost 2.2 percent to 6.65 ringgit.

Golden Agri-Resources Ltd., a unit of Sinar Mas Group, Indonesia's largest oil-palm grower, fell 5.6 percent to 59.5 Singapore cents.

Palm oil may fall to less than 2,425 ringgit ($709) a ton if crude falls below $100 a barrel, Malaysian Plantation Industries and Commodities Minister Peter Chin Fah Kui said.

Further Decline

If ``petroleum is going to come down further, there will be a chance that palm oil will also follow because the graph tracks each other,'' Chin told reporters today in Kuala Lumpur. Still, the current range of 2,500 ringgit to 3,000 ringgit would be ``comfortable'' for growers, he said, echoing recent comments.

The decline in palm oil prices may prompt the government to review a special tax on domestic producers such as IOI Corp. and Sime Darby Bhd. as the band in which the levy is payable has narrowed, hurting collection, Chin said.

Soybean oil for December delivery on the Chicago Board of Trade was down 4.5 percent at 51.77 cents per pound after dipping to 51.74 cents, the lowest since Aug. 15. The Chicago market was closed yesterday for the Labor Day holiday.

The dollar rose as high as $1.4467 per euro, the highest since Jan. 21. Crude oil fell as much as 8.7 percent from the Aug. 29 close to $105.46 a barrel, the lowest since April 4.

Malaysian Exports

Exports of Malaysian palm oil 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.

Indonesia's state marketing center accepted bids for 8,500 metric tons of the 14,000 tons of palm oil offered in a tender today, Aziz Kahar, head of sales, said from Jakarta.

To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net; Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net