Palm Oil in Malaysia Climbs on Expectations Demand to Increase

By Glenys Sim and Claire Leow

Sept. 3 (Bloomberg) -- Palm oil futures in Malaysia climbed, paring yesterday's 5.2 percent drop, on expectations that demand for the tropical commodity will increase for use in alternative fuels and as a food ingredient during Asia's festive season.

``Palm oil prices are currently undervalued,'' Thomas Mielke, chief editor of OilWorld, the trade publication, said from Siem Reap, Cambodia. ``At this level, palm oil consumption for energy is set to rise sharply.''

Palm oil, the world's most consumed vegetable oil, can be mixed with regular diesel to stretch fossil fuel supplies. The futures contract has tumbled 44 percent from a record 4,486 ringgit a metric ton in March amid concerns that global supply may exceed demand and as funds cut commodity investments.

Palm oil for November rose as much as 66 ringgit, or 2.7 percent, to 2,550 ringgit ($741) a ton on the Malaysia Derivatives Exchange, and was at 2,523 ringgit at 12:30 p.m. local time. The contract slumped yesterday as crude oil prices fell.

``Palm oil prices will rebound in the fourth quarter,'' Tan Ting Min, a research analyst at Credit Suisse Group, wrote in a report today. ``Malaysian palm oil exports in August grew to hit an all-time high, driven primarily by a strong pick-up in exports to India and Pakistan ahead of the festive seasons.''

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.

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.

``We expect a pick-up in September,'' wrote Tan. ``Palm oil exports to the Middle Eastern countries should also be higher ahead of the festive season.''

OilWorld's Mielke forecast that the price of palm oil may rise to average $1,120 a ton in the year ending June 2009. That compares with an average of $1,041 a ton the previous year.

Increased demand for the tropical oil as feedstock for biofuel would support palm oil prices unless crude oil declined, he said.

To contact the reporters for this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Claire Leow in Siem Reap at cleow@bloomberg.net