Palm Oil Falls a Second Day as Crude’s Drop Cuts Biofuel Appeal

By Thomas Kutty Abraham

Dec. 19 (Bloomberg) -- Palm oil futures in Malaysia fell for a second day as crude oil’s slump to the lowest in more than four years cut the appeal of biofuels made from vegetable oils.

Oil is set for the second-biggest weekly drop in more than five years and the worst monthly performance since 1986 as the global recession erodes demand. Palm oil, used mainly in foods, tracks crude as it is also a feedstock for alternative fuels.

“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 as much as 2.3 percent, or 36 ringgit, to 1,509 ringgit ($436) a metric ton, the lowest since Dec. 9, on the Malaysia Derivatives Exchange. The commodity traded at 1,513 ringgit at the 12:30 p.m. local time break, 66 percent below the record of 4,486 ringgit set in March.

Rising palm oil stockpiles in Malaysia may stall a recovery in prices, Simone Yeoh, an analyst at JPMorgan Chase & Co., said in a report today.

Reserves of the commodity in Malaysia, the second-largest producer after Indonesia, climbed to a record 2.27 million tons in November, the country’s palm oil board said last week. Output that month reached a record 1.67 million tons.

“The catalyst for a recovery is lacking with still high inventory levels,” Yeoh wrote. “It is too early to turn bullish.”

Crude oil for January delivery was little changed at $36.36 a barrel at 1 p.m. Singapore time on the New York Mercantile Exchange. Oil has dropped 22 percent this month.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.