BLBG: Palm Oil Advances as Gains in Crude, Soybean Oils Increase Biofuel Appeal
Palm oil futures advanced, tracking gains in soybeans and crude oil, which boosted the appeal of the tropical oil as a biodiesel feedstock.
October-delivery futures jumped as much as 1.3 percent to 2,455 ringgit ($764) a metric ton on the Malaysia Derivatives Exchange. The most-active contract traded at 2,435 ringgit at the mid-day break in Kuala Lumpur.
“Crude is holding its gain today and that’s supportive for palm oil prices,” said Alimuhammad Lakdawala, an analyst at AnandRathi Commodities Ltd. in Mumbai.
Oil traded near a three-week high as equities climbed and an industry report showed a drop in U.S. crude stockpile. Crude for September delivery was little changed at $77.54 a barrel on the New York Mercantile Exchange at 12:36 p.m. Singapore time.
Goldman Sachs Group Inc. expects crude palm oil prices for immediate delivery to gain 15 percent to 20 percent this year as a dry weather impacts Malaysian production. A 35 percent decline in palm oil inventory in Malaysia from its peak in December will be positive for prices, Goldman analysts Patrick Tiah and Nikhil Bhandari said in a report today.
“Malaysian crude palm oil production has been relatively weak due to biological yield stress, but we see more downside risk in the second half of the year from the lagged impact of dry weather in early 2010,” the analysts said.
Goldman expects U.S. bio-diesel demand to pick up in the second-half of the year and pressure on palm oil prices to ease from a record soybean harvest. It expects soybean output to drop next year on lower yields and acreage.
Asian Demand
The most-active palm oil contract advanced 9.1 percent in eight-day period ended July 19 on speculation that demand for the vegetable oil will climb on Asian demand.
Soybeans in Chicago gained as much as 0.4 percent to $9.725 a bushel at 12:35 p.m. Singapore time. December-delivery soybean oil, which rose 1.2 percent yesterday for the first time in three days, traded unchanged at 39.19 cents a pound at 12:38 p.m.
“There’s increased demand for soybean oils world over and that may limit gains for palm oil,” AnandRathi’s Lakdawala said. “Palm oil will find incremental demand only if the premium of soybean oil price increases substantially.”
Soybean oil’s premium over palm oil narrowed to $106.61 a ton from $110.76 yesterday, according to Bloomberg data. The two oils are direct substitutes.
Malaysia’s overseas sales of palm oil dropped three percent to 879,018 tons in the first 20 days of the month, from the same period in June, according to cargo surveyor Intertek. Shipments to China slumped 61 percent to 134,700 tons, the data showed. Rival Societe Generale de Surveillance said yesterday exports fell 4.8 percent, with shipments to China down 61 percent and those to India lower by 7.6 percent.
CME Group Inc.’s October-delivery palm oil contract, which is pegged to the Malaysian benchmark price, fell 0.4 percent to $752.5 a ton yesterday.
On the Dalian Commodity Exchange, January-delivery palm oil was little changed at 6,520 yuan ($962) a ton at 11:38 a.m. in Singapore.
To contact the reporters on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net;
