Palm Oil Drops to Near a 2-Year Low on Worsening Demand Outlook

By Claire Leow

Oct. 6 (Bloomberg) -- Palm oil futures plunged to the lowest in almost two years amid concern that a global economic slowdown will cool demand for resources.

December-delivery palm oil declined as much as 208 ringgit, or 10 percent, to 1,792 ringgit ($514) a metric ton, the lowest since Nov. 23, 2006. Futures were at 1,816 ringgit at the 12:30 p.m. trading pause on the Malaysia Derivatives Exchange.

Palm oil may fall another 10 percent as production exceeds demand, said Nirgunan Tiruchelvam, assistant director at ABN Amro Asia Securities (Singapore) Pte. Output in Malaysia, the biggest producer after Indonesia, rose for a sixth month in August to a record 1.6 million tons.

``In the short-term, it's linked to the commodities slump, though there's a specific reason for palm oil's drop: production is so strong it is outstripping demand,'' he said.

Palm oil futures slumped 14 percent last week, the biggest weekly decline in almost eight years, according to data on the Bloomberg. Prices, including insurance and freight, may average $1,000 a ton this year in Rotterdam, Tiruchelvam said. That's lower than the average $1,072 since January.

Palm oil on China's Dalian Commodity Exchange declined the day's limit of 5 percent to 6,174 yuan ($901) a ton. Exchanges in the Asian nation were closed last week for National holidays.

Commodities tumbled the most in more than five decades last week amid weak economic data in the U.S. and Europe. Employers in the U.S. cut jobs by the most in five years in September, while manufacturing in the U.K contracted the most in 16 years last month. France slipped into a recession in the third quarter for the first time in 15 years.


Dollar Rally

Palm oil and other commodities may rebound if the dollar weakens, Aseambankers Malaysia Bhd. said in a report today. The dollar has gained against 15 out of 16 major currencies tracked by Bloomberg in the past month, making commodities expensive.

``A weaker dollar in the present soft patch of the global economic cycle would tend to favor soft commodities over hard commodities, especially given the still tight supply situation for many grains and edible oils, which may modestly re-ignite the `fuel-and-food' theme,'' Aseambankers said.

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 biofuels. Oil futures in New York fell 12 percent last week to $93.88 a barrel, reducing the appeal of palm oil for use in biodiesel.

Stocks of plantation companies and edible-oil refiners fell.

Wilmar International Ltd., the world's top palm oil trader which supplies almost half of China's edible oils, fell as much as 6.7 percent to S$2.24. The stock lost 12 percent last week.

Indofood Agri Resources Ltd., the Singapore-listed palm oil unit of Indonesia's biggest noodle maker, dropped as much as 11 percent to 64 Singapore cents, extending last week's loss of 12 percent.

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