Malaysian palm oil may drop on higher Indian output

Palm oil futures in Malaysia may fall 4.7 per cent in the next three weeks as above-average rainfall increases oilseed production in India, probably reducing overseas purchases of the commodity, TransGraph Consulting said.

Prices may decline as low as 2,450 ringgit ($723) a metric ton, M Somasekhar, an analyst at TransGraph, said by phone from the southern city of Hyderabad on October 5. "The beginning of the harvesting season in India will lead to some weakness.'' Reduced imports by India, the biggest palm oil buyer after China, may further boost Malaysian stockpiles, which rose 11 per cent in August to 1.45 million tons, a six-month high.

Palm oil for December delivery, the most active contract, fell as much as 29 ringgit, or 1.1 per cent, to 2,570 ringgit a tonne on October 5 on the Malaysia Derivatives Exchange, which trades the global benchmark.

India's production of winter harvested oilseeds, including peanuts and soybeans, may rise to 16.1 million tonnes from 13.94 million tonnes a year earlier, the farm ministry said September 19.

Malaysia, the world's second-largest producer of palm oil, increased output 15 per cent in August to 1.56 million tonnes, the highest in a year, the Palm Oil Board said September 10.

Palm oil reached a record in June amid rising sales to China and India. Prices have also risen on biofuel demand after crude oil tripled to a record in the past five years.

Indonesia and Malaysia produce 85 per cent of the world's palm oil, used mainly as cooking oil, a cleaning agent and as a fuel additive.

Malaysia's palm oil production may total 16.8 million tons in 2008, compared with an estimated 15.4 million tonnes this year, according to TransGraph.

Indonesia's palm oil output may rise 8.2 per cent next year to 18.4 million tonnes from an estimated 17 million tonnes this year as more trees mature, Derom Bangun, chairman of the nation's palm oil producers' association said September 23 in Goa.