BLBG: Palm Oil Falls for Third Day as Crude Drop Dims Biofuel Appeal
By Glenys Sim and Thomas Kutty Abraham
Dec. 2 (Bloomberg) -- Palm oil futures in Kuala Lumpur fell for a third day after crude oil slumped, dimming prospects for biofuels made from vegetable oils.
Crude fell to the lowest in more than three years on signs the U.S., the biggest energy user, is experiencing a more severe economic downturn than expected. Palm oil, used mainly in food, tracks crude oil as analysts consider it viable for use as a biofuel when oil rises above $80 a barrel.
“The global economic slowdown is weighing on demand while supply is still very high,” Ivy Ng, analyst at CIMB Research Sdn in Kuala Lumpur, said today.
Palm oil for January delivery traded at 1,570 ringgit a metric ton ($431) on the Malaysia Derivatives Exchange at the 12:30 p.m. local time break after earlier declining as much as 4.2 percent. The commodity has fallen 65 percent since reaching a record in March.
Crude oil for January delivery fell as much as $1.70, or 3.5 percent, to $47.58 a barrel in after-hours trading on the New York Mercantile Exchange. That’s the lowest since May 20, 2005. It was at $48.03 a barrel at 10:04 p.m. in Mumbai.
“Palm oil is moving in tandem with crude oil,” Amol Tilak, an analyst at Mumbai-based Kotak Commodity Services Ltd., said. “The vegetable oil needs to fall further to aggravate demand as an alternative for crude oil.”
Record Inventories
Malaysia’s palm oil stockpiles reached an all-time high of 2.1 million tons as output climbed to a record 1.65 million tons, the Malaysian Palm Oil Board reported Nov. 10.
“Palm oil stockpiles continue to be at record levels and demand traditionally declines during the winter months,” Kotak’s Tilak said. “There are no fundamental factors supporting palm oil at the moment.”
Rival soybean oil in Chicago gained 0.5 percent to 31.55 cents a pound at 10:05 a.m. in Mumbai. Palm oil is at a 62 percent discount to soybean oil, Bloomberg data show.
“Some positives for the price may be the discount to soybean oil as well as the approach of the Chinese festive season,” CIMB Research’s Ng said. “Those planning to cut back on their food budget and buy cheaper oil may consider buying palm oil.”
To contact the reporters for this story: Glenys Sim in Singapore at gsim4@bloomberg.netThomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
