Palm Oil Declines on Outlook for Higher Stockpiles in Indonesia

By Luzi Ann Javier

Nov. 3 (Bloomberg) -- Palm oil declined as mounting stockpiles in Indonesia, the world’s biggest producer, boosted investor concern about excess supply.

“Increasing palm oil stocks over in Indonesia are starting to get on people’s radar screen,” Carey Wong, an analyst at Oversea-Chinese Banking Corp., said by phone from Singapore today. “The problem is demand hasn’t really picked up faster than the increase in production.”

Inventories in the country probably climbed to 1.7 million tons in October from an average of 1.3 million to 1.4 million tons in August and September, Derom Bangun, a deputy chairman of Indonesia’s Palm Oil Board, said yesterday in Kuala Lumpur.

Palm oil for January delivery dropped as much as 1 percent to 2,186 ringgit ($639) a ton on the Malaysia Derivatives Exchange and traded at 2,196 ringgit by the 12:30 p.m. break. Crude oil and soybean oil for December delivery were little changed at $77.99 a barrel in New York and 36.78 cents a pound in Chicago.

Soybean oil’s premium over palm oil was 26 percent today, down from a three-month high of 32 percent on Oct. 21. Rising inventories may curb a 30 percent rally in palm oil futures this year, which outpaced a 9.4 percent gain in soybean oil. Crude oil advanced 75 percent.

Palm oil production in Indonesia may reach 21.5 million tons to 22 million tons in 2010 as more plantations mature, from an expected 20.5 million tons this year, Bangun said. Exports will also be higher as economic growth boosts demand in China and India, he said.

New Rule Delayed

Indonesia postponed to July 2010 a requirement for commodity exporters to use letters of credit for shipments exceeding $1 million.

The condition, scheduled to take effect Nov. 1, was postponed “because the aim of the rule should be reached without causing excessive burden to exporters amid a global recession that has not recovered,” a statement from Indonesia’s Department of Trade said today.

PT Sinar Mas Agro Resources and Technology may build two palm oil processing plants for a total of $150 million, Bisnis Indonesia reported. Sinar Mas plans to build a palm oil-based food-processing plant in Jakarta and an oleochemical plant in Medan, North Sumatra, it reported.

-- With assistance from Soraya Permatasari in Kuala Lumpur Editor: James Poole

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