Palm Oil May Fall Below 2,425 Ringgit a Ton on Crude

By Soraya Permatasari

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

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.


Palm oil, the world's most used vegetable oil, has tumbled 42 percent from a record in March as crude oil slumped, eroding the attractiveness of palm oil as a biofuel. Crude futures dropped to a four-month low today as concern eased that Hurricane Gustav would cause major damage to U.S. oil output and refineries.

``In the near term, palm oil will continue to track crude oil prices,'' said James Ratnam, an analyst at TA Securities Holdings Bhd. in Kuala Lumpur. Chin's forecast ``makes sense,'' he said.

Palm oil futures fell as much as 4.7 percent to 2,495 ringgit a ton on the Malaysia Derivatives Exchange, and traded at 2,515 ringgit at the 12:30 p.m. local time break. The contract reached an all-time high of 4,486 ringgit on March 4.

``If petroleum price comes down to below $100, I won't be surprised that palm oil will move downwards from'' 2,425 ringgit a ton, Chin said. The minister didn't say why he chose to highlight that particular palm oil price.

Crude Drops

Crude oil futures plunged as much as 4.2 percent to $110.60 a barrel in New York, taking their decline to 24 percent from the record $147.27 a barrel reached in July. Crude last traded at less than $100 a barrel on April 2, when it touched a low of $99.84.

Palm oil prices have also fallen as supplies from Indonesia and Malaysia, the top producers, exceed demand. Indonesia may harvest more than 19 million tons this year and Malaysia more than 17.4 million tons, Dorab Mistry, director at Godrej International Ltd., said Aug. 25.

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

Planters, who pay the tax when they sell palm oil at more than 2,000 ringgit a ton, want the threshold raised because their production costs have risen. The tax is charged based on the difference between the current price and the 2,000 ringgit level.

``The treasury may have to look at it in that sense, and see whether there is a need to either revise or do something about the collection,'' Chin said.

Chin said Aug. 26 that Malaysia was ``comfortable'' with palm oil prices between 2,500 ringgit and 2,800 ringgit. Malaysia's Finance Ministry said Aug. 29 in its 2008-09 economic report that the commodity may average 3,000 ringgit a ton this year.

To contact the reporter on this story: Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net