Palm, soy oils ride high on crude

Palm oil gained to a record in Malaysia and soybean oil rose to a 33-year high in Chicago as soaring crude oil prices improved the demand outlook for biofuels derived from vegetable oils.

Palm oil often moves in the same direction as prices of crude oil, which rose above $98 a barrel today in New York. Palm oil, the world's most-used vegetable oil and the cheapest, and soybean oil, made from the oilseed, are used to make biodiesel, an alternative fuel, as well as for cooking.

The gains in shares of plantation companies and palm oil prices have become "part and parcel'' of the rally in crude oil, said Scott Lim, who helps manage $400 million at CMS Dresdner Asset Management in Kuala Lumpur.

IOI Corp., Malaysia's largest palm oil producer by value, climbed as much as 9.8 per cent today. PT Astra Agro Lestari, Indonesia's biggest publicly traded agriculture company, rose as much as 7.3 per cent.

Palm oil for January delivery, the most-active contract, gained 40 ringgit, or 1.35 per cent, to 3,000 ringgit ($901) a tonne on the Malaysia Derivatives Exchange today. The commodity earlier rose as high as 3,009 ringgit.

Soybean oil for December delivery rose as much as 0.38 cent, or 0.87 per cent, to 44 cents a pound, the highest for a most-active contract since 1974, in after-hours electronic trading on the Chicago Board of Trade.

Soybean oil has also been supported by a loss of soybean planting acreage in the US, where farmers switched to corn earlier this year for better returns, and damage on soybean crop by drought in China. US soybean acreage this year is the lowest in 12 years, according to the government.

China and India, the biggest vegetable oil buyers, import palm oil to fill shortages in supplies of soybeans, groundnuts and canola oils. Palm oil for May delivery on China's Dalian Commodity Exchange rose 2.2 per cent to settle at 8,816 yuan ($1,185) a tonne.

Palm oil may climb as high as 3,000 ringgit a tonne over the next year because of rising demand and a shortage in supplies of vegetable oils, Dorab Mistry, a director at Godrej International, said on September 23 at a conference in Goa, India.

Macquarie Securities also raised their forecast of crude palm oil prices on "continuing tightness in world supply'' of edible oils, analysts led by David Johnson and Amy Yang said in a report yesterday.

Crude palm oil prices may average $780 a tonne in the next three years, compared with Macquarie's previous forecast at $700 a tonne, the report said.

"It is very high at this level, which can deter market demand,'' said Jianli Yang, vice-president of Tianjin Longwit Oils & Grains Industrial Co, which buys about 600,000 tonnes of the commodity yearly, mainly from Malaysia.

"One has to be circumspect,'' Yang said. "Soybean oil is also very high and palm oil could correct after this rally.''

Palm oil may fall by 100-200 ringgit in a subsequent correction, Yang added, speaking at a palm oil conference in Bali. Palm oil is still used mostly in food and soaps. Indonesia and Malaysia make up 90 per cent of global output of palm oil.

IOI gained 60 sen, or 8.4 per cent, to 7.75 ringgit, its largest gain since October 26, on the Malaysia stock exchange. Astra Agro climbed 1,100 rupiah, or 4.8 per cent, to 23,800 in Jakarta.

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WELL OILED

Palm oil for January delivery gained 40 ringgit, or 1.35 per cent, to 3,000 ringgit ($901) a tonne on the Malaysia Derivatives Exchange

Soybean oil for December delivery rose as much as 0.38 cent, or 0.87 per cent, to 44 cents a pound

Crude palm oil prices may average $780 a tonne in the next three years, compared with Macquarie's previous forecast at $700 a tonne