Palm Oil Gains the Most in 7 Years as Recent Drop Lures Buyers

By Claire Leow and Yoga Rusmana

Oct. 30 (Bloomberg) -- Palm oil futures in Malaysia gained the most since at least December 2001 after a 28 percent plunge in the past month widened the gap with soybean oil and crude oil, luring buyers.

``Palm oil's discount to soybean oil is now $380,'' said Tan Ting Min, an analyst at Credit Suisse in Kuala Lumpur. The ``huge discount should encourage a demand shift to palm oil from more expensive vegetable oils. Bio-diesel demand has increased as palm oil prices have fallen more than crude oil.''

Palm oil for January delivery gained 8.7 percent to 1,560 ringgit ($441) a ton on the Malaysia Derivatives Exchange, the most since December 2001. The contract had slumped to the lowest since August 2005 this week on concern the global lending crisis may slash demand.

The gains followed advances in soybean oil and crude oil, for which palm oil is a substitute for both food and fuel needs. Crude oil for December delivery rose above $70 a barrel for the first time in six days. Oil yesterday rose 7.6 percent in New York, the most since June 6.

Crude traded at $68.27 a barrel at 6:07 p.m. Singapore time and is down 31 percent in the past month.

December-delivery soybean oil rose as much as 2.7 percent to 35.24 cents a pound, extending yesterday's 7.7 percent gain in Chicago, the most since February 2005. It traded at 34.70 cents at 6:08 p.m. Singapore time. At yesterday's close, the commodity had an 89 percent premium to palm oil, a record for this year, according to Bloomberg data.

Indonesian Tender

Meantime, the Indonesia's state marketing center accepted bids for 8,500 tons out of 10,500 tons of palm oil offered in a tender today, said Aziz Kahar, head of sales in Jakarta.

The center sold 1,500 tons ex-factory Medan and 2,000 tons from Belawan port in North Sumatra province to PT Multimas Nabati Asahan at 4,418 rupiah a kilogram ($414 a ton).

PT Bukit Kapur Reksa bought 1,000 tons from Dumai port in Riau province at 4,418 rupiah per kilogram and 1,000 tons out of Tayan port in West Kalimantan province at 4,178 rupiah, he said.

The agency, which markets palm oil from state plantations, sold 2,000 tons from Boom Baru port in South Sumatra province and 1,000 tons from Panjang port in Lampung province to PT Sinar Alam Permai. Both sales were at 4,243 rupiah a kilogram.

To contact the reporters on this story: Claire Leow in Singapore at cleow@bloomberg.net; Yoga Rusmana in Jakarta at yrusmana@bloomberg.net