Palm Oil Jumps on Supply, Demand Outlook, Soybean Oil Discount

By Claire Leow

Nov. 25 (Bloomberg) -- Palm oil futures climbed for a second day on speculation the discount to soybean oil will spur demand and vegetable oil supplies may become scarcer.

Palm oil, used for foods, soaps and detergents, has lost two-thirds of its value since a record in March and trades at a 69 percent discount to soybean oil, Bloomberg data show.

``Demand for edible vegetable oils should remain relatively robust,'' said Doug Whitehead, agricultural commodity strategist at Australia and New Zealand Banking Group Ltd. ``The majority of the demand erosion is priced in.''

Palm oil for February delivery on the Malaysia Derivatives Exchange gained 4.2 percent to 1,550 ringgit ($428) a ton at the 12:30 p.m. trading break, the biggest intra-day gain in 11 days.

Soybean oil may average 34 cents a pound in 2008-09, Whitehead said in a report today, compared with 53.4 cents on average in the past 12 months, and 32.85 cents at 2:09 p.m. Singapore time on the Chicago Board of Trade today.

In the U.S., the largest producer of soybeans and corn, ``soybeans will have to compete strongly with corn to gain sufficient acreage in order to assure adequate supplies,'' said Whitehead, who forecasts soybeans at $10 a bushel from $8.80 today. That may translate into higher prices for soybean oil and other vegetable oils.

Crude oil for January delivery in New York jumped 9.2 percent yesterday to $54.50 a barrel, the biggest gain in 14 days, boosting palm oil. It trades at $53.85 a barrel at 2:19 p.m. in Singapore. Vegetable oils can be blended with diesel to stretch fossil fuels as a bio-fuel.

Palm Oil Recovery

Crude palm oil prices are close to a bottom, said Goldman Sachs Group Inc. yesterday. Palm oil may gain to between 1,900 ringgit and 2,200 ringgit a ton in three months, when demand destruction eases, Thomas Lee Bauer, a director of Rabobank International in Singapore, said last week.

Indonesia and Malaysia, which provide 90 percent of the world's palm oil, are taking measures to reduce supplies to bolster prices. Both have pledged to cut supply by 800,000 tons next year by replanting palms. That would slow supply growth, as palms take three years to mature.

Malaysia's palm oil growers yesterday urged state- controlled power utility Tenaga Nasional Bhd. to burn palm oil to convert into energy in an effort to reduce stockpiles.

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