Palm oil futures gain as investors speculate increase in demand

People are likely to shift from extra virgin olive oil, corn oil or soybean oil.

Palm oil futures had the biggest gain in eight trading days in Malaysia on investors’ speculation that demand for the tropical commodity may increase as the consumers seek to use cheaper vegetable oils amid the global recession.

“We’re seeing some downgrading from people who usually use extra virgin olive oil, corn oil or soybean oil,” Carey Wong, an analyst at Overseas-Chinese Banking Corp, said today by phone. “Palm oil is still among the cheapest vegetable oils,” Wong said.

The Organisation of Economic Cooperation and Development (OECD)said yesterday that the economy of its 30 members would contract 4.3 per cent this year, while the World Bank cut its 2009 growth forecast for developing countries by more than half.

The June-delivery contract for palm oil, which is used in foods, cosmetics and biofuel, rose 3.5 per cent to 2,070 ringgit ($568) a tonne on the Malaysia Derivatives Exchange at the close in Kuala Lumpur. The price has risen about 22 per cent since the start of the year.

Demand for cheaper food commodities may increase during the global recession as consumers rein in spending and try so-called trading down. Rice demand might gain as more people eat the grain instead of meat, Robert Ziegler, director-general of the International Rice Research Institute, said last month.

Companies that make soaps and margarine from the chemicals derived from vegetable oils might switch to palm oil to cut costs, Wong said from Singapore. “If you’re a company facing falling demand and tighter margins, obviously you’ll switch to a lower priced raw material,” he said.

Malaysian exports
Palm oil exports from Malaysia, the second-largest producer after Indonesia, gained 5.4 per cent to 1.22 million tonnes in March, from a month earlier, according to an estimate yesterday from cargo surveyor Societe Generale de Surveillance. Shipments to Europe gained 47 per cent to 216,780 tonnes, while exports to China fell.

The bulk of palm oil exports to Europe go to companies that processed the tropical oil into chemicals used for making soaps and margarine, Wong said.

Soybean oil for May delivery fell 0.5 per cent to 33.45 cents a pound in after-hours trade on the Chicago Board of Trade. The commodity is a rival product to the palm oil.

Soybean acrerage would rise 0.4 per cent to a record 76.024 million acres, from 75.718 million acres a year ago, the US Department of Agriculture said yesterday. That compares with a 4.5 per cent gain in soybean plantings forecast by analysts in a Bloomberg News survey.