Palm oil falls in Asia as high prices may curb demand

Palm oil futures in Malaysia, the industry benchmark, closed lower for the first day in seven on concern that record prices reached this week may dent demand in favour of other vegetable oils.

Higher prices may reduce the attraction of palm oil as a substitute for soybean oil, especially in China and India, the biggest importers of both oils. It may also make palm oil less attractive in its use in new applications such as biofuels.

"It is too high already," said Gaotama Setiawan, managing director at PT Salim Oil Grains in Jakarta, who has been trading the commodity for 23 years. "It's almost parity with soybean oil. It's not a good thing."

Palm oil for August delivery, the most actively traded contract on the Malaysia Derivatives Exchange, fell 38 ringgit, or 1.5 per cent, to 2,500 ringgit ($735) a metric tonne. It earlier dropped as much as 2.8 per cent.

The contract reached a record 2,590 ringgit a tonne yesterday, equivalent to 34.52 cents a pound, just 1.9 per cent lower than soybean oil, which closed at 35.18 cents, off a 23-year high. Palm oil is the world's most consumed vegetable oil, followed by soybean oil.

In the past year, palm oil has traded on average 16 per cent cheaper than soybean oil. The commodity has averaged 1,816 ringgit a tonne, or 24.2 cents a pound, in the past 12 months compared with 28.66 cents a pound for soybean oil.

China increased overseas purchases of palm oil by 27 per cent to 1.6 million metric tonnes in January to April from a year ago, May 25 data from the Beijing-based customs office showed.