Palm Oil Declines to Three-Year Low as Global Supplies Increase

Palm Oil Declines to Three-Year Low as Global Supplies Increase
Business & Markets 2013
Written by Bloomberg
Friday, 26 July 2013 17:37

(July 26): Palm oil dropped to the lowest level since October 2009 on concern that expanding global cooking oil supplies will exceed demand growth.

The contract for delivery in October declined as much as 1.5 percent to 2,137 ringgit ($665) a metric ton on the Bursa Malaysia Derivatives, and was at 2,156 ringgit at 4:55 p.m. in Kuala Lumpur. Futures are headed for a thirdly weekly decline.

World stockpiles of palm are set to surge 21 percent to a record 9.5 million tons by the end of 2013-2014 as demand expands 4.4 percent, the least in 12 years, U.S. Department of Agriculture data show. Soybean oil, a competing product, slumped to the lowest since 2010 as supplies rise to a record for a fifth year, the USDA predicts.

“This is probably an interim low period for palm oil demand,” said Arhnue Tan, an analyst at Alliance Investment Bank Bhd. “The declines in palm oil still look a bit overblown. There should be some recovery in demand toward the end of the year but for now, soybean prices will still keep palm oil prices a bit subdued.”

Palm oil’s 14-day relative strength index was below 30 for a second day today, a technical signal to some analysts that an asset’s price has fallen too fast and is poised to increase.

Supply Increase
Futures may drop to 2,000 ringgit after July as Ramadan demand subsides and output increases, Dorab Mistry, director at Godrej International Ltd., said on May 21. While palm is produced year-round, supply typically accelerates in the second half because of growing cycles.

Palm production, accounting for 35 percent of cooking oil supply, will expand 5 percent to 58.1 million tons in 2013-2014, USDA data show. Output doubled over the previous decade, led by Indonesia and Malaysia.

Shipments from Malaysia, the largest producer after Indonesia, fell 7 percent to 1.09 million tons in the first 25 days of July from the same period in June, according to surveyor Intertek. Exports dropped 6 percent, SGS (Malaysia) Sdn. said.

Soybean oil for delivery in December fell as much as 1.1 percent to 43.35 cents a pound on the Chicago Board of Trade, the lowest level for the most active contract since September 2010, before trading at 43.51 cents. Soybeans for delivery in November declined 0.4 percent to $12.1925 a bushel.

Refined palm oil for January delivery lost 2.7 percent to 5,368 yuan ($875) a ton on the Dalian Commodity Exchange, the lowest level at close for the most-active contract since March 2009. Soybean oil fell 2.2 percent to end at 6,986 yuan, the lowest price since October 2009.