Palm Oil Heads for Third Weekly Drop on Concern Demand to Ease

By Claire Leow

Jan. 30 (Bloomberg) -- Palm oil futures headed for a third weekly decline on concern that the global economic recession will reduce demand and purchases may slow after the Chinese Lunar New Year holidays.

Palm oil, mainly in cooking and increasingly as a biofuel, has fallen 4 percent this week. Markets in China, the largest consumer of edible oils, are closed for the week-long holidays. Palm products are also used in soaps and detergents.

“The focus is on demand,” Ong Chee Ting, a plantation analyst at Maybank Investment Bank Bhd. in Kuala Lumpur, said by phone today. “Demand for biodiesel is going to be very small but demand for food and oleo-chemicals will be the second test in the next six to 12 months. It’s dependent on the economic outlook.”

Palm oil for April delivery gained 0.6 percent to 1,756 ringgit ($486) a metric ton on the Malaysia Derivatives Exchange at the 12:30 p.m. trading break after earlier dropping as much as 1.4 percent. Futures slid almost 5 percent in the previous two weeks.

Malaysian palm oil exports declined 24 percent in the first 25 days of January to 1.02 million tons, compared with the same period in December, Societe Generale de Surveillance, an independent cargo surveyor, said Jan. 28. Shipments were a record 1.6 million tons last month, led by demand from China and India.

Palm oil may trade between 1,600 and 1,800 ringgit a ton in the next four weeks, “with the risk in the next month that the price will stay low” while the market awaits news on soybean supplies, Ong forecast. Soybean oil is the main substitute for palm oil.

Soybean Crops

Argentina, the largest exporter of soybean oil, may harvest as much as 25 percent less soybeans this year because of drought, Ricardo Forbes, president of the Buenos Aires Cereals Exchange, said last week.

The focus in February will shift to the outlook for U.S. soybean planting, Ong said. “Last year was exceptional with good weather, and weather is the wild card this year,” he said.

The U.S. Department of Agriculture gives its outlook for soybean, corn and wheat plantings next month.

Soybean oil for March delivery gained 0.2 percent to 32.43 cents a pound on the Chicago Board of Trade at 12:56 p.m. Singapore time. The vegetable oil is 47 percent more expensive than palm oil, according to Bloomberg data.

Crude oil prices need to be more than $60 a barrel for a strong price correlation to exist with vegetable oils, which can be converted into biofuels, Ong said.

Oil for March delivery on the New York Mercantile Exchange added 0.4 percent to $41.61 a barrel at 2:03 p.m. Singapore time in after-hours trading. The futures headed for a weekly decline, after last week’s 27 percent surge.

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