Palm Oil Drops to Two-Month Low as Soybean Oil Supplies Climb

Jan 08, 2014 5:50 am ET

Jan. 8 (Bloomberg) -- Palm oil fell for a fifth day to the lowest level in almost two months on concern that demand for the tropical oil used in everything from food to fuel may shrink on increasing supplies of soybean oil.

The contract for March delivery retreated 0.6 percent to 2,547 ringgit ($778) a metric ton on the Bursa Malaysia Derivatives, the lowest price at close for the most active futures since Nov. 11. Futures are down 4.2 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 survey showed. That may boost supplies of soybean oil, which competes with palm for use in food and fuel.

“Palm oil is currently facing downward pressure mainly brought about by weakening U.S. and China soybean markets,” said Tan Chee Tat, an analyst at Phillip Futures Pte., in Singapore. “Palm oil’s narrowing discount to soybean oil had encouraged substitution, shifting away some demand from palm oil to soybean oil in terms of food and biodiesel uses.”

Soybean oil tumbled to the lowest level since July 2010 yesterday in Chicago, narrowing its premium over palm oil to $51.73 a ton today, compared with an average of $238.69 in the past year, according to data compiled by Bloomberg. Soybean oil for March delivery retreated 0.7 percent to 37.67 cents a pound on the Chicago Board of Trade today, while soybeans were down 0.2 percent at $12.7375 a bushel.

Refined palm oil for May delivery slumped 2.5 percent to close at 5,786 yuan ($956) a ton on the Dalian Commodity Exchange, the lowest level for futures since Oct. 15. Soybean oil dropped ended little changed at 6,608 yuan, the lowest price since April 2009.

--With assistance from Ranjeetha Pakiam in Kuala Lumpur. Editor: Thomas Kutty Abraham