Palm Oil Futures Advance for Second Day as Crude Oil Rallies

By Glenys Sim

Oct. 21 (Bloomberg) -- Palm oil futures in Kuala Lumpur gained for a second day after crude oil rallied, boosting prospects for biofuel demand.

Prices, which have fallen 19 percent this month, rose as crude oil in New York rose for a third day on signs that the Organization of Petroleum Exporting Countries will cut output. Demand for crude palm oil and its main substitute soybean oil has increased as use of vegetable oils for bio-diesel has cut availability for cooking.

The recent ``price correction looks overdone'' as it ``does not reflect global crude palm oil industry fundamentals,'' Morgan Stanley Asia Pte. analysts led by Fordyanto Widjaja said in a report today. ``We do not expect the tightness in the stock-to- usage ratio to ease until 2012 amid a lagging supply response and defensive demand increase. Food consumption remains the major driver.''

Palm oil for January delivery rose as much as 37 ringgit, or 2.2 percent, to 1,714 ringgit ($486) a metric ton on the Malaysia Derivatives Exchange. Futures traded at 1,688 ringgit at 10:47 a.m. local time. Prices have slumped 45 percent this year.

Morgan Stanley today pared its price forecast by an average of 42 percent to $925 a ton in 2008, $550 in 2009 and $650 in 2010 ``to reflect the recent price correction.''

Crude palm oil prices are expected to ``gradually rebound'' from current levels in the medium term, said Widjaja.

Soybean oil in Chicago lost 2.5 percent to 36.66 cents a pound at 10:49 a.m. in Singapore.

To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net