Palm Drops Most in Three Weeks as Global Soybeans Reserves Climb

Jan 07, 2014 5:39 am ET

Jan. 7 (Bloomberg) -- Palm oil tumbled the most in more than three weeks on concern that demand for the tropical oil may weaken on rising global inventories of soybeans, crushed to produce an alternative cooking oil.

The contract for March delivery retreated 1.7 percent to 2,561 ringgit ($780) a metric ton on the Bursa Malaysia Derivatives, the biggest decline for the most-active futures at close since Dec. 13. Futures are down 3.7 percent this year.

Global inventories of soybeans may be 71.46 million tons, more than the 70.62 million tons estimated by the U.S. Department of Agriculture in December, a Bloomberg News survey showed. A record Latin American row crop harvest and all-time high 2014-2015 U.S. soybean output signal “downside risk”, Citigroup Inc. said in a report yesterday.

“Prices are down tracking the soy complex,” said Isha Trivedi, an analyst at PhillipCapital India Pvt. Ltd. “A likely rise in supply of other vegetable oils is putting pressure on palm. Indian demand also remains sluggish.”

Soybean oil’s premium over palm oil prices was $51.9727 a ton today from an average of $239.63 in the past year, according to data compiled by Bloomberg. Soybean oil for March delivery fell as much as 1.2 percent to 37.67 cents a pound on the Chicago Board of Trade, the lowest price since July 2010. Soybeans dropped 0.6 percent at $12.6925 a bushel.

Declining output in Malaysia could cap losses in palm futures, said Trivedi.

Stockpiles in Malaysia, the world’s second-biggest supplier, probably declined for the first time in four months as production tumbled the most since February, a Bloomberg survey showed today. Inventories fell 3 percent to 1.92 million tons in December from a month earlier, while output dropped 10 percent to 1.67 million tons, according to the median of seven estimates from plantation companies, analysts and traders.

Refined palm oil for May delivery declined 0.7 percent to close at 5,936 yuan ($981) a ton on the Dalian Commodity Exchange. Soybean oil tumbled 1.3 percent to end at 6,612 yuan.

--Editor: Thomas Kutty Abraham