Palm Oil at Near Two-Week High After Biggest Drop in 13 Years

(Bloomberg) -- Palm oil futures in Malaysia rose to the highest in almost two weeks, after posting their worst monthly fall in October since at least 1995, on expectation low prices and easing economic conditions may revive demand.

China and India, the world's largest buyers of palm oil, are accelerating efforts to prop up growth as a global slump threatens their economies. The Reserve Bank of India on Nov. 1 lowered its benchmark repurchase rate for the second time in two weeks. The People's Bank of China on Oct. 29 cut its key rate for the third time in two months.

``We expect the current volatile global economic conditions to start to stabilize in 2009 and should see demand for palm oil to pick up,'' analysts at ECM Libra Capital Sdn. said in a report today.

Palm oil for January delivery soared as much as 10 percent to 1,666 ringgit ($473) a metric ton on the Malaysia Derivatives Exchange, the highest since Oct. 21, and closed at that level. It touched a three-year low of 1,331 ringgit a ton on Oct. 28, 70 percent off its March record.

Palm oil production may also ease ``in the coming year due to the low-yield cycle,'' ECM Libra analysts said, adding that crude palm oil prices should be about 2,300 ringgit a ton in the long-term.

The edible oil, used mainly in cooking and increasingly as a fuel substitute, plunged 28 percent last month as lower demand cut exports from Malaysia, the world's second-largest producer, and stockpiles gained.

Exports from Malaysia fell 12 percent in September, lifting inventories 5.5 percent from the previous month to 1.95 million tons, the third-highest on record, the Malaysian Palm Oil Board said on Oct. 10.

Tracking Crude

Palm oil futures rose today along with soybean oil. The two are the world's most consumed edible oils.

Soybean oil for December delivery, which dropped 24 percent in October, rallied as much as 6 percent today to 35.60 cents a pound in after-hours trading on the Chicago Board of Trade. It traded at 35.30 cents at 4:02 p.m. Singapore time, a 68 percent premium to palm oil, according to Bloomberg data. The premium reached the highest in a year of 89 percent on Oct. 29.

Crude oil for December delivery lost earlier gains and fell 0.9 percent to $67.17 a barrel at 5:01 p.m. Singapore time. Vegetable oils, which can be used as biofuels, track crude oil prices.

Palm oil prices may remain volatile, said Macquarie Bank in a report today. ``The market has come to realize that the oil price has now become a ceiling for edible oil prices,'' Macquarie said.

``We have reduced our crude palm oil price forecasts to $400 a ton in 2009 and $500 a ton in 2010, from $1,025 a ton and $1,000 a ton,'' the report said. ``Crude palm oil prices will continue to remain under pressure over the next two years. We expect demand for edible oils to remain weak in light of the global economic recession.''

Source : Bloomberg