Palm Oil Advances as Buyers May Return Following Price Plunge

By Claire Leow

Nov. 26 (Bloomberg) -- Palm oil futures gained for the third day on speculation a 66 percent price drop from a record in March may attract buyers.

Analysts at Goldman Sachs Group Inc., Australia and New Zealand Banking Group Ltd. and Rabobank International say prices may have bottomed as demand increases and supply from Indonesia and Malaysia, the biggest producers, has peaked.

``We expect palm oil prices to improve in 2009,'' said Tan Ting Min, a plantation analyst at Credit Suisse Group AG in Kuala Lumpur. ``Inventories should decline over the next five months due to seasonal reasons and a demand-supply mismatch.''

Palm oil for February delivery rose 1.2 percent to 1,538 ringgit ($425) a metric ton at 11:58 a.m. on the Malaysia Derivatives Exchange, bringing the three-day gain to 5.5 percent.

The Malaysian Palm Oil Board said Nov. 10 the country had a record stockpile in October of 2.1 million tons, as output rose 4.6 percent to a record 1.65 million tons from September.

Stockpiles in Indonesian warehouses and ports stand at 2 million tons, compared with a normal 1.1 million tons, as buyers have defaulted on some orders, Akmaluddin Hasibuan, chairman of the Indonesian Palm Oil Association, said Nov. 24.

Indonesia and Malaysia, which provide about 90 percent of the world's palm oil, are set for record 2008 output. They have pledged to cut supply by 800,000 tons next year by replanting palms. Oil palms take three years to mature.

Substitute Demand

Palm oil, used for foods, soaps and detergents, tracks crude oil and soybean oil, as it's a substitute in food and fuel applications.

Soybean oil in Chicago was unchanged at 32.64 cents a pound at 12:07 p.m. in after-hours trading in Singapore, after yesterday's 1.4 percent drop. Palm oil trades at about a 58 percent discount to soybean oil, Bloomberg data show.

Crude oil for January delivery gained 0.9 percent to $51.20 a barrel in New York today after dropping 6.8 percent yesterday, increasing the allure of bio-fuels made from vegetable oils.

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