Palm Oil Falls as Crude Nearing $50/Barrel Dims Demand Outlook

By Feiwen Rong

Nov. 20 (Bloomberg) -- Palm oil futures in Malaysia fell for the first time in three days, as a decline in crude oil prices to the lowest in 22 months dimmed demand outlook for the commodity at a time when stockpiles have risen to a record.

Crude in New York fell for a fifth day, approaching $50 a barrel, as the contracting world economy increased concern that demand for fuels will slow. Palm oil, used mainly in food, tracks crude oil as it is also used in biofuels.

``The palm oil market sentiment is very weak now and it's largely tracking crude oil performance,'' said Ong Chee Ting, analyst at Aseambankers Malaysia Bhd., by phone from Kuala Lumpur today. ``And the excess in inventories doesn't help.''

Palm oil for January delivery declined 2.8 percent to 1,438 ringgit ($396) a ton on the Malaysia Derivatives Exchange at the 12:30 p.m. local time trading break. Futures have lost 68 percent since reaching record 4,486 ringgit a ton on March 4.

Malaysia's palm oil inventories last month climbed to 2.09 million tons and production gained 4.6 percent to a record 1.65 million tons from the previous month.

Combined stockpiles in Malaysia and Indonesia, which account for more than 90 percent of the world's production, may rise to over 5 million tons in November, according to recent estimates by Dorab Mistry, director at Godrej International Ltd.

Crude oil for December delivery fell as much as 81 cents, or 1.5 percent, to $52.81 a barrel on the New York Mercantile Exchange before trading at $52.85 at 11:15 a.m. in Singapore.

Soybean oil for December delivery on the Chicago Board of Traded fell 1.5 percent to 31.86 cents a pound at 11:21 a.m. in Singapore in after-hours trading. Soybean oil is the main substitute for palm oil and the two often track performance in the crude oil.

To contact the reporter on this story: Feiwen Rong in Singapore at frong2@bloomberg.net;