Palm oil rises to 3-week high

Palm oil prices in Malaysia rose to a three-week high on expectations that demand for the world's largest traded vegetable oil will increase, as supply of competing soybean oil declines from a lower US crop.

US farmers planted the lowest acreage to soybeans in 12 years this year as they switched production to corn, according to a June 29 report from the US department of Agriculture. Palm oil is the most consumed vegetable oil in the world, followed by soybean oil.

Palm oil for September delivery, the most actively traded contract on the Malaysia Derivatives Exchange, rose 41 ringgit, or 1.7 per cent, to 2,468 ringgit ($719) a ton in Kuala Lumpur, the highest closing since June 7. It earlier rose as much as 63 ringgit, or 2.6 per cent, to 2,490.

"The report of a lower soybean crop in the US is pushing up palm,'' said Alvin Tai, an analyst at OSK Research in Kuala Lumpur. "Bullish factors such as tight supply and strong demand from China and India are still intact and supporting prices.''

Global vegetable oil consumption is expected to rise 4.1 per cent in the year ending September 2008, driven by increases in China, India and the European Union, the US Department of Agriculture said in a report June 12.

US soybean plantings fell to 64.08 million acres this year, below the 67.84 million acres forecast by analysts surveyed by Bloomberg.

Palm oil in Malaysia may trade as high a 2,500 ringgit a ton in the next four to six weeks, supported by exports and low Malaysian stockpiles, said Dorab Mistry, director at Godrej International, at the China Grain and Edible Oil Market Outlook conference in Beijing today.

"This bull market for vegetable oil will continue but with corrections. The end is not yet in sight as long as the grains and oilseeds continue to compete for acreage and China and India's demand remain robust,'' Mistry said.

Malaysia's palm oil exports dropped 15 per cent in June to 1.01 million tons, compared with May, Societe Generale de Surveillance, an independent cargo surveyor, estimated today.

"Exports will rise in July and Malaysian inventory at 1.2 million tons is too low for comfort,'' Mistry said, adding that China will have big demand for vegetable oil in the second half of this year.

The price of palm oil, which reached a record on June 6, has risen almost 30 per cent this year.

Palm oil competes with soybean oil, and is used for cooking, and to make soaps, detergents, industrial lubricants and fuel additives. About 90 per cent of the palm oil is produced in Malaysia and Indonesia.

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