Palm Oil Falls for First Day in Three on Lower Demand Outlook

By Jae Hur

July 27 (Bloomberg) -- Palm oil futures dropped for the first time in three days on speculation that lower soybean and soybean oil prices may erode demand prospects for the commodity.

Soybean prices in Chicago fell 0.9 percent last week on expectations that cool weather and rain will boost yields in the U.S. and soybean oil lost 2.6 percent. Palm oil competes with soybean oil in cooking oil and biofuel.

Palm oil was under pressure after soybeans and soybean oil declined last week, said Ben Santoso, an analyst at DBS Vickers Securities (Singapore). Still, rising crude oil prices would limit any future decline in palm oil, he said.

October-delivery palm oil fell as much as 1.7 percent to 2,085 ringgit ($591) a metric ton on the Malaysia Derivatives Exchange and was at 2,099 ringgit by 11:44 a.m. local time. The vegetable oil has declined 5.9 percent this month, heading for a third such drop.

Palm oil ended little changed last week on renewed concerns that record stockpiling this year by China and India, the largest consumers, will damp export orders when the peak seasonal demand period concludes.

There is “further downside potential of crude palm oil prices as current stockpiles continue to accumulate at record high levels, largely in China and India,” UOB Kay Hian (Malaysia) Holdings Sdn. said a report on July 23. Prices of palm oil could drop to 1,900 ringgit a ton this quarter, lower than an earlier estimate of 2,000 ringgit a ton, the report said.

Soybean oil for December delivery was up 0.2 percent at 34.66 cents a pound at 11:54 a.m. Singapore time after losing 2.2 percent on July 24 on the Chicago Board of Trade. Futures are trading at a 28 percent premium to palm oil, down from 51 percent in January, according to Bloomberg data.

Crude Gains

September-delivery crude oil was up 0.8 percent at $68.58 a barrel by 11:58 a.m. Singapore time on the New York Mercantile Exchange after gaining as much as 82 cents to $68.87, the highest intraday price since July 2.

Malaysia’s palm oil exports rose 9.9 percent in the first 25 days of July compared with the same period the previous month, according to independent surveyor Intertek. A total of 1,117,848 tons of palm oil were tracked July 1-25, Intertek said in a report today. Malaysia exported 1,017,105 tons of palm oil in the same period in June, the surveyor said.

“The rise in Malaysia’s exports was largely within market expectations,” Santoso said.

To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net