By Thomas Kutty Abraham and Claire Leow
Dec. 19 (Bloomberg) -- Palm oil futures in Kuala Lumpur dropped for a second day after crude oil’s slump raised investors’ concerns that demand for the tropical oil as a feedstock for alternative fuel will dim.
Crude is set for the worst monthly performance since 1986 as the global recession erodes energy demand. Palm oil, used mainly in cooking, can track crude prices because of its usage in biofuels.
“Crude has been steadily falling, offering little support for palm oil,” James Ratnam, an analyst at TA Securities Holdings Bhd. in Kuala Lumpur, said in a phone interview. “For palm oil to recover, physical demand has to emerge.”
March-delivery palm oil fell 0.6 percent to 1,536 ringgit ($443) a metric ton, the lowest since Dec. 5, on the Malaysia Derivatives Exchange. The contract lost 3.4 percent this week.
Oil fell to as low as $35.62 a barrel this week on rising U.S. stockpiles and skepticism the Organization of Petroleum Exporting Countries will achieve an agreed production cut. It was at $35.71 a barrel at 7 p.m. in Singapore.
Malaysia, the second largest palm oil producer, reported on Dec. 12 that stockpiles climbed to a record 2.27 million tons in November, according to data from the country’s palm oil board. Output reached a record 1.67 million tons that month.
‘Too Early’
“The catalyst for a recovery is lacking with still high inventory levels,” Simone Yeoh, an analyst at JPMorgan Chase & Co., said in a report today. “It is too early to turn bullish.”
The ratio of stockpiles to usage increased to 1.68 times in November from 1.56 times in October, Penny Yaw, an analyst at Citigroup Inc. in Kuala Lumpur said on Dec. 16. Stockpiles won’t fall until “we enter a seasonally lower production period in the first half” of 2009, Yaw said.
Demand for palm oil typically slows during the Northern Hemisphere winter as palm oil clouds over in cooler temperatures. Soybean oil, its main rival, is 54 percent more expensive than palm oil, its main substitute, according to Bloomberg data.
Soybean oil for March delivery fell 0.3 percent to 30.95 cents a pound on the Chicago Board of Trade at 6:51 p.m. Singapore time.
There were no physical palm oil tenders in Indonesia today as the state marketing center for the world’s largest producer of the commodity had no offers from state plantations to sell, Aziz Kahar, head of sales, said by phone in Jakarta.
To contact the reporters on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net; Claire Leow in Singapore at cleow@bloomberg.net
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