Palm Oil Rises on Demand After Biggest Monthly Drop in 13 Years

By Feiwen Rong

Nov. 3 (Bloomberg) -- Palm oil futures in Malaysia rose after posting their worst monthly fall since at least 1995 on expectation that low prices and easing economic conditions may revive demand for the tropical oil.

Both China and India, the world's largest buyers of palm oil, are accelerating efforts to prop up growth as a global slump threatens their economies. The Reserve Bank of India on Nov. 1 lowered its benchmark repurchase rate for the second time in two weeks. The People's Bank of China on Oct. 29 cut its key rate for the third time in two months.

``We expect the current volatile global economic conditions to start to stabilize in 2009 and should see demand for palm oil to pick up,'' analysts at ECM Libra Capital Sdn. said in a report today.

Palm oil for January delivery soared as much as 7.3 percent to 1,625 ($461) ringgit a metric ton on the Malaysia Derivatives Exchange and traded at 1,619 ringgit at 11:32 a.m. in Singapore. It touched a three-year low of 1,331 ringgit a ton on Oct. 28, 70 percent off its March record.

Palm oil production may also ease ``in the coming year due to the low-yield cycle,'' ECM Libra analysts said, adding that crude palm oil prices should be about 2,300 ringgit a ton in the long-term.

The edible oil, used mainly in cooking and increasingly as a fuel substitute, plunged 28 percent last month as lower demand cut exports from Malaysia, the world's second-largest producer, and stockpiles gained.

Exports from Malaysia fell 12 percent in September, lifting inventories 5.5 percent from the previous month to 1.95 million tons, the third-highest on record, the Malaysian Palm Oil Board said on Oct. 10.

Crude Increases

Palm oil futures rose today along with soybean oil and crude oil. Crude oil for December delivery traded at $68.75 a barrel at 11:19 a.m. Singapore time, boosting the appeal for biofuels made from vegetable oils, including palm oil.

Soybean oil for December delivery dropped 24 percent in October and rallied 4.4 percent today to 35.08 cents a pound at 11:20 a.m. Singapore time in after-hours trading on the Chicago Board of Trade.

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