Palm Oil Rises as Gains in Crude, Soybean Oils Improve Outlook

By Claire Leow

Jan. 14 (Bloomberg) -- Palm oil futures in Malaysia, the global benchmark, advanced as the demand outlook for its use improved following gains in crude oil and soybean oil.

Crude oil rose a second day in New York after OPEC leaders signaled their intention to make deeper supply cuts to bolster prices. Soybean oil, the main rival to palm oil, climbed 1.2 percent to 34.83 cents a pound in Chicago yesterday.

A drop in Malaysian palm oil inventories in December from a record in the previous month, and a surge in exports, aided the rally. Stockpiles declined 12 percent to 1.99 million tons, as exports rose 18 percent to 1.61 million tons, the nation’s palm oil board said Jan. 12.

“Crude palm oil will trade higher because strength is coming back to the industry,” Arhnue Tan, an analyst at ECM Libra Capital Sdn., said by phone. “Production is coming down.”

March-delivery palm oil gained 3 percent to 1,884 ringgit ($527). Yesterday, futures fell 8 percent, the most since Oct. 24.

Palm oil, used mainly in food, is more resilient to economic downturn than other commodities and “it is reasonable to see an average of 2,175 ringgit this year,” Tan said. The vegetable oil averaged 1,602 ringgit in the fourth quarter and 2,852 ringgit for 2008, according to Bloomberg data.

Malaysian stockpiles may drop to 1.7 million tons, from 2 million at the end of 2008, later in the year, she added.

Soybean oil traded in Chicago for March delivery gained 1.1 percent to 35.2 cents a pound at 5:44 p.m. Singapore time, making it 47 percent more expensive than palm oil. The premium typically narrows in the second half.

Crude oil traded in New York rose 3 percent to $38.92 a barrel at 6:03 p.m. Singapore time in after-hours trading, poised for the biggest gain in seven days.

Soybeans for September delivery on the Dalian Commodity Exchange rose 1.4 percent to 3,424 yuan ($501) a ton at the end of the morning trading session while soybean oil for May delivery was little changed at 6,296 yuan. Palm oil for May delivery dropped 0.7 percent to 5,336 yuan.

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