Palm Oil Gains on Speculation Sales to Gain as Users Seek Value

By Luzi Ann Javier

April 1 (Bloomberg) -- Palm oil futures rose for a second day in Malaysia on investors’ speculation that demand for the tropical commodity may increase as consumers seek to use cheaper vegetable oils amid the global recession.

“We’re seeing some downgrading from people who usually use extra virgin olive oil, corn oil or soybean oil,” Carey Wong, an analyst at Oversea-Chinese Banking Corp., said today by phone. “Palm oil is still among the cheapest vegetable oils.”

The Organization of Economic Cooperation and Development said yesterday that the economy of its 30 members will contract 4.3 percent this year, while the World Bank cut its 2009 growth forecast for developing countries by more than half.

The June-delivery contract for palm oil, which is used in foods, cosmetics and biofuel, rose 1.4 percent to 2,028 ringgit ($556) a metric ton on the Malaysia Derivatives Exchange at 11:50 a.m. in Kuala Lumpur. The price has risen about 20 percent since the start of the year.

Demand for cheaper food commodities may increase during the global recession as consumers rein in spending and try so-called trading down. Rice demand may gain as more people eat the grain in place of meat, Robert Ziegler, director-general of the International Rice Research Institute, said last month.

Companies that make soaps and margarine from chemicals derived from vegetable oils may switch to palm oil to cut costs, Wong said from Singapore. “If you’re a company facing falling demand and tighter margins, obviously you’ll switch for a lower priced raw material,” he said.

Palm oil exports from Malaysia, the second-largest producer after Indonesia, gained 5.4 percent to 1.22 million tons in March, according an estimate yesterday from cargo surveyor Societe Generale de Surveillance. Shipments to Europe gained 47 percent to 216,780 tons, while exports to China fell.

The bulk of palm oil exports to Europe go to companies that process the tropical oil into chemicals that are used for making soaps and margarine, Wong said.

Soybean oil for May delivery fell 0.7 percent to 33.38 cents a pound in after-hours trade on the Chicago Board of Trade at 11:39 a.m. in Singapore. Soybean oil is a rival product to palm oil.

To contact the reporter for this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net