Palm Oil Drops the Most Since June, Tracking Crude Oil Losses

By Claire Leow

Sept. 28 (Bloomberg) -- Palm oil tumbled the most in more than three months after a leading industry buyer said prices must slump 13 percent from current levels to stoke demand for food and fuel applications and as crude oil fell.

The commodity needs to decline to 1,900 ringgit ($547) a metric ton for demand to rebound, Dorab Mistry, director of Godrej International Ltd., said yesterday in Mumbai. Godrej is one of the biggest buyers of palm oil in India, the second- largest consumer of edible oils.

“Prices need to become more competitive if biodiesel usage is to expand,” Mistry, who has traded edible oils for three decades, said at a conference.

Palm oil for December delivery in Malaysia, the second- biggest producer, dropped 3.8 percent to 2,103 ringgit a ton on the Malaysia Derivatives Exchange. That was the biggest drop since June 22.

Prices of the tropical commodity, which competes directly with soybean oil for use in cooking and biodiesel, have climbed 24 percent this year on concern there may be a global oilseed shortage. Higher crude prices and speculation the global economy was recovering also boosted futures.

Crude oil slipped to less than $66 a barrel in New York today as declines in Asian equities raised concern a recovery in fuel demand may stall.

November-delivery crude oil, which slumped 8.9 percent last week, dropped as much as 0.9 percent to $65.41 a barrel in Singapore. It was 0.5 percent lower at $65.69 at 6:29 p.m. Singapore time.

Palm oil traded in Dalian for May delivery dropped 1.5 percent to 5,730 yuan ($839) a ton, a sixth day of decline. China is the world’s largest consumer of edible oils.

Weak Trend

“We concur with Dorab’s expectations for weaker crude palm oil prices till end-2009,” a UOB Kay Hian research report said today. “We expect the weak price trend to continue into March or April 2010,” as supply improves during the seasonally weakest quarter for demand in the first quarter, it added.

The outlook for palm oil was based on an assumption that crude oil will trade at between $65 and $80 a barrel until the spring of 2010, Mistry said. He correctly predicted on Aug. 4 that palm oil would drop to 2,100 ringgit a ton as inventories expanded on increased production.

Malaysia’s palm oil production gained 0.2 percent in August on month to 1.49 million tons, the highest level since a record set in November last year, according to the Malaysian Palm Oil Board on Sept. 10. That helped lift stockpiles to a six-month high of 1.42 million tons, as exports fell for the first time in four months.

Still, palm oil may reach $1,000 a ton if a global economic recovery pushes crude oil up to $95 a barrel, James Fry, managing director of LMC International Ltd., which tracks the world’s main oilseeds, said at the same conference.

“Biofuels have created a link between mineral and vegetable oil prices,” Fry said.

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