By Claire Leow April 27 (Bloomberg) -- Palm oil fell for the first time in four days as the outlook for substitution demand eased after its discount to rival soybean oil narrowed. Palm oil for July delivery dropped 0.2 percent to 2,554 ringgit ($800) a metric ton at 3:40 p.m. in Kuala Lumpur, declining from an 11-day high yesterday on the Malaysia Derivatives Exchange. “With soy inventories in 2010-11 expected to reach near- record levels and the discount between crude palm oil and soy oil quite narrow currently, we see limited upside to crude palm oil prices in 2010,” said Sunaina Dhanuka, a plantation analyst at Macquarie Securities in Kuala Lumpur. Soybean oil in Chicago for July delivery gained 0.5 percent to 39.95 cents a pound. That put its premium over palm oil at $80.49 a ton, according to Bloomberg data, which compares with the past 12-month average of $130.63. The premium was at its narrowest in three weeks at yesterday’s close, spurring today’s gains in soybean oil. The U.S., Brazil and Argentina, the largest producers of soybeans, will contribute to a record crop this year. Soybeans are crushed for meal for animal feed and oil for cooking and biofuels. Palm oil, the cheapest feedstock for biofuels, also tracked crude oil lower. The world’s most-consumed edible oil has tracked crude oil’s weekly movements for the past 11 weeks. Crude oil in New York for June delivery dropped 0.7 percent to $83.64 a barrel at 3:50 p.m. Singapore time. In China, palm oil traded in Dalian rose for a third day, rising 0.2 percent at 7,010 yuan ($1,027) a ton. To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net

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