Palm oil rises on China demand

Palm oil futures in Malaysia, the global benchmark for the contract, rose for a third day on the outlook for Chinese demand, and as its price compares favourably with soybean oil, the main rival product.

China, the largest buyer of vegetable oils, imported 3.67 million tonnes of palm oil in the first 10 months of this year, 6.7 per cent more that a year ago, the customs data showed today.

Palm oil for January delivery, the most-active contract, rose 8 ringgit, or 0.3 per cent, to end at 2,942 ringgit ($872) a metric tonne on the Malaysia Derivatives Exchange. The contract reached a record 3,013 ringgit on November 9.

Soybean oil for January delivery fell 0.6 per cent to 45.25 cents a pound in after-hours trading on the Chicago Board of Trade. Still, a pound of palm oil now costs 5.8 cents less than each pound of soybean oil, Bloomberg data shows. The discount of 6 cents a pound yesterday was the widest since March 29. "Palm oil is attractively priced," Liliana Bambang, an analyst at Mandiri Sekuritas, said by phone from Jakarta.

"The two are correlated." Soybean oil, crushed from soybeans, has risen 58 per cent in the past year because of a shortage caused by reduced crop area and drought. US farmers switched to corn for better returns, resulting in the lowest soybean acreage in 12 years this year, while drought damaged the crop in China. China and India, the biggest vegetable oil importers, buy palm oil to fill gaps in supplies of soybean, groundnut and canola oils. Palm oil for May delivery on China's Dalian Commodity Exchange rose 22 yuan, or 0.25 per cent, to 8,926 yuan ($1,202) a tonne.

Malaysia and Indonesia control 90 per cent of the world's palm oil production. The US, Brazil and Argentina are the largest exporters of soybeans.