Palm Oil Drops for Second Day as Crude Slump Cuts Biofuel Appeal

Jan 03, 2014 5:31 am ET

Jan. 3 (Bloomberg) -- Palm oil fell for a second day as crude oil’s biggest decline in almost 14 months yesterday reduced the appeal of vegetable oils as biofuel feedstock and after Indonesia forecast a jump in production this year.

The contract for March delivery lost 0.3 percent to close at 2,640 ringgit ($803) a metric ton on the Bursa Malaysia Derivatives. Futures gained 0.3 percent this week, extending a 2.7 percent rally in the previous two weeks.

West Texas Intermediate crude declined 3 percent yesterday, the biggest drop since November 2012, as an improving U.S. economy added to speculation that the Federal Reserve will further curb stimulus. About 6.34 million tons of palm oil was probably processed into fuel last year, according to industry researcher Oil World.

“The drop in crude oil has discouraged buyers,” Donny Khor, deputy director of futures and commodities at RHB Investment Bank Bhd., said by phone from Kuala Lumpur.

Output in Indonesia, the world’s largest producer, will increase 15 percent to 28 million tons this year from 24.4 million tons in 2013, the Agriculture Ministry said today.

“If production is set to rise, the likelihood is that it might cause some downward pressure on palm oil as the higher production may contribute to higher stockpiles,” said Tan Chee Tat, an analyst at Phillip Futures Pte in Singapore.

Soybean oil for March delivery rose 0.2 percent to 38.87 cents a pound on the Chicago Board of Trade. Soybeans climbed 0.4 percent to $12.75 a bushel.

Refined palm oil for May delivery declined 1.3 percent to close at 6,068 yuan ($1,003) a ton on the Dalian Commodity Exchange. Soybean oil lost 1.4 percent to end at 6,822 yuan.

--With assistance from Eko Listiyorini in Jakarta. Editor: Thomas Kutty Abraham