Palm Oil Drops to One-Month Low on Rising Soybean Oil Supplies

(Businessweek) – Palm oil dropped for a second day to the lowest in more than a month on speculation that demand for the commodity may weaken amid rising supplies of soybean oil.

The contract for September delivery lost 1 percent to 2,355 ringgit ($742) a metric ton on the Bursa Malaysia Derivatives, the lowest price at close for the most-active futures since May 21. Palm for local physical delivery in July was at 2,375 ringgit, data compiled by Bloomberg show.

Global production of vegetable oils and fats will probably exceed demand in 2013-2014 on rising output of sunflower-seed oil and soybean oil combined with sluggish biodiesel demand, industry researcher Oil World said June 25. Total production of 17 oils and fats in the year through September 2014 is predicted to climb to 193.8 million tons from 187.3 million tons in 2012-2013, it said.

“South American soybean production has been pretty good and it seems like they have a pretty good crush margin,” said Donny Khor, deputy director of futures and commodities at RHB Investment Bank Bhd. in Kuala Lumpur. “When more soybean oil comes out of South America, it will compete with palm. The palm oil discount to soybean oil has narrowed quite a lot.”

Soybean oil’s premium to palm fell to $257.0355 a ton on June 25, the lowest since August, according to data compiled by Bloomberg. Soybean oil for December delivery gained 0.4 percent to 45.64 cents a pound on the Chicago Board of Trade, after declining 1.1 percent yesterday to close at the lowest level for the most active futures since October 2010. Soybeans for delivery in November climbed 0.3 percent to $12.795 a bushel.

Refined palm oil for January delivery declined 0.9 percent to 5,828 yuan ($948) a ton on the Dalian Commodity Exchange, the lowest price at close since September 2009, while soybean oil lost 0.4 percent to end at 7,302 yuan.