Palm Oil Declines to 19-Month Low Amid Worsening Demand Outlook

By Claire Leow

Oct. 3 (Bloomberg) -- Palm oil futures plunged to a 19-month low, mirroring a slump in commodities, on concern a proposed $700 million U.S. financial rescue plan won't avert a global economic slowdown as credit costs surge.

December-delivery palm oil declined as much as 6.5 percent to 1,954 ringgit ($562) a metric ton on the Malaysia Derivatives Exchange, the lowest since March 15, 2007. Futures have fallen below 2,000 ringgit twice this week.

The Reuters/Jefferies CRB Index of 19 commodities has fallen 9.9 percent this week, the largest drop since at least 1956, as a worsening global growth outlook sent prices for crude oil, corn, soybeans, nickel and gold tumbling from peaks reached this year.

``Recent Malaysian export data and a revision in EU biofuels policy amid falling crude oil prices suggest that the pressure on crude palm oil prices is likely to persist,'' Sunaina Dhanuka, an analyst at Macquarie in Kuala Lumpur said today.

On Sept. 11, the EU Industry & Energy Committee lowered its target for 5.75 percent of renewable energy sources in transport fuel by 2010 to 5 percent by 2015, a move that may crimp demand for palm oil for use in biofuels by 2 million tons a year for the next two years, Dhanuka said. The new target is to be voted on by lawmakers on Oct. 8.

Vegetable oils made from soybeans, corn, rapeseeds and oil palms, used mostly in cooking, often track crude oil prices as they can be used to make alternative fuels. Oil futures in New York have slumped 13 percent this week to $93.29 a barrel.

Malaysia's palm oil exports fell 19 percent in September to 1.2 million tons compared with the previous month, independent surveyor Intertek said today. Indonesia and Malaysia account for 90 percent of the world's palm oil production.

Plantation Stocks

Stocks of plantation companies and edible-oil refiners fell. Wilmar International Ltd., the world's biggest palm oil trader which supplies almost half of China's edible oils, dropped as much as 3.95 percent to S$2.43 in Singapore. The stock has lost 11 percent of its value this week.

Indofood Agri Resources Ltd., the Singapore-listed palm oil unit of Indonesia's biggest noodle maker, dropped as much as 7.8 percent to 70.5 Singapore cents, extending this week's loss to 13 percent. It was at 71 Singapore cents at 11:13 a.m. local time.

Golden Agri Resources Ltd., owner of the world's second- largest oil-palm plantation, plunged as much as 6.1 percent to 31 cents, and has lost 15.1 percent this week. It was at 31 Singapore cents at 11:15 a.m. local time.

To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net