Palm oil at 8-year high in Malaysia

Palm oil traded in Malaysia rose for a fourth day, reaching the highest in more than eight years, on concern demand is rising faster than supply and depleting inventories of the world's most traded vegetable oil.

Stockpiles in Malaysia dropped 12 per cent to 1.18 million tonnes in April, the lowest since May 2004, as exports rose for a second month, the Malaysian Palm Oil Board said. Malaysia and Indonesia control about 90 per cent of the global palm oil supply.

"It should reach a high of 2,500 ringgit soon,'' said Ben Santoso, an analyst at DBS Vickers Securities Indonesia. "The price should go up in the months preceding the third quarter, when production rises.''

Palm oil for July delivery rose as much as 58 ringgit, or 2.7 per cent, to 2,387 ringgit ($702) a tonne on the Malaysia Derivatives Exchange. That's the highest intraday price since Sept 8, 1998, when it reached 2,392 ringgit. It has averaged 2,026 ringgit this year. Santoso forecast an average of 2,100 ringgit for the year.

Demand is rising as palm oil, conventionally used for cooking and to derive chemicals for making soaps and detergents, is increasingly used as a fuel additive.

Indonesia may halve the tax on biofuels used for cars, trucks and motorbikes to 2.5 per cent to encourage state oil company PT Pertamina to distribute the fuel, said Evita Legowo, secretary of a team promoting biofuel use.

"There's essentially a supply deficit even in absentia of biodiesel demand,'' said David Fergusson, an analyst at Citigroup Global Markets in Jakarta. "The diesel market is an enormous market, of 1 trillion liters worldwide, one-third of it in Asia. Biodiesel will make it a lot worse if it actually kicks off.''