Palm Oil Futures in Malaysia Slump on Concern Demand May Drop

By Claire Leow and Pratik Parija

March 2 (Bloomberg) -- Palm oil futures dropped in Kuala Lumpur on investors’ concerns that the global recession may curb demand for the commodity, including in China and India, the world’s two most populous nations.

“The China-India story, which drove the commodity price rally in 2007, 2008, appears to have fizzled out with the current economic crisis,” said Chan Wei Siang, a soft commodities analyst at Rabobank International in Singapore. There was an “uncertain demand picture,” said Chan.

Exports of palm oil from Malaysia, the world’s second- largest producer after Indonesia, fell 8.3 percent in February to 1.17 million metric tons from the previous month, independent surveyor Intertek said on Feb. 28. China and India are the biggest consumers of palm oil.

Palm oil for May delivery fell 5 ringgit, or 0.3 percent, to 1,890 ringgit ($507) a ton at the 12:30 p.m. trading break on the Malaysia Derivatives Exchange. The most-active contract, which dropped as much as 0.9 percent today, has slumped 56 percent over the past year.

China’s economy, the world’s third-largest, expanded 6.8 percent in the fourth quarter, the slowest pace in seven years. India’s economy grew 5.3 percent in the last quarter, the slowest pace since 2003, according to data released Feb. 27 by the country’s statistics agency.

Palm oil also dropped today as crude prices fell. Palm oil can be used as a fuel additive as well as a cooking ingredient, and declines in energy prices can drive palm futures lower.

Crude oil for April delivery fell as much as $1.23, or 2.8 percent, to $43.53 a barrel in electronic trading on the New York Mercantile Exchange. The contract was at $43.62 a barrel at 1:24 p.m. Singapore time.

To contact the reporters for this story: Claire Leow in Singapore at cleow@bloomberg.net; Pratik Parija in New Delhi at pparija@bloomberg.net