Palm oil rises 8-year high to 2,200 ringgit

Palm oil futures rose to the highest in more than eight years after Malaysia, the largest grower last year, issued data showing its stockpiles plunged to a 19-month low in March.

Inventories fell 11 per cent to 1.34 million tonne, the Palm Oil Board said yesterday. Palm oil futures have risen 55 per cent in the past year on rising demand for the vegetable oil for cooking and as an alternative fuel. The contract for June rose as much as 2.4 per cent to 2,205 ringgit ($639) a tonne today, putting it on course for its highest close since December 15, 1998.

"There's probably more upside, and it may move to 2,300 to 2,400 ringgit,'' said Alain Lai, an analyst at UBS AG in Kuala Lumpur. Still, "we're at a level of pricing where demand is starting to be hurt both on the fuel side and on the food side.What would be healthy would be to consolidate at this level.'' Palm oil for delivery in June, the most active contract on the Malaysia Derivatives Exchange, traded at 2,195 ringgit a tonne, up 2 per cent, at 3:59 pm local time.

Lai forecasts an average price of 2,200 ringgit this year, and 2,400 ringgit next year.

Malaysia's output gained 1.2 per cent to 3.19 million tonne in the first three months, while local demand more than doubled in the quarter, reducing exports by 8.7 per cent, according to data published by the Malaysian Palm Oil Board on its web site.

Stockpiles were the lowest since August 2005.

Malaysia and Indonesia account for 85 per cent of world palm oil production in almost equal proportion.