Palm Oil, Little Changed, May Drop as Rally to One-Month High Cools Demand

Palm oil futures, which closed the day little changed, may decline on concern that the rally to a one-month high may cool demand from India and China, the biggest users of the tropical commodity.

December-delivery futures ended at 2,671 ringgit a metric ton ($861) on the Malaysia Derivatives Exchange after rising as much as 1 percent to 2,699 ringgit intraday as rival soybean oil jumped to a two-year high and the dollar dropped. Prices closed at 2,708 ringgit, a one-month high, on Sept. 20.

“There isn’t much demand for physical palm oil from buyers like China and India at the current price,” said Amol Tilak, an analyst at Kotak Commodity Services Ltd. Futures may drop by 50 ringgit to 60 ringgit a ton before demand revives, he said.

The tropical oil has rebounded 18 percent from an eight- month low on July 7 on speculation that demand will increase from Asian countries celebrating festivals and that harvesting in Malaysia and Indonesia will be disrupted in November and December if La Nina causes flooding in growing areas.

Palm oil climbed earlier as December-delivery soybean oil rose as much as 2 percent to 44.13 cents a pound on the Chicago Board of Trade, the highest since Oct. 2, 2008. Soybean futures for November delivery gained 0.9 percent to $10.9825 a bushel. The oilseed reached a 15-month high of $10.995 on Sept. 20.

The dollar declined for a fourth day against a six-currency basket before a report that may show existing U.S. home sales were near the lowest in 10 years, backing the case for the Federal Reserve to keep borrowing costs low. U.S. shippers sold 226,000 tons to China, the Department of Agriculture said yesterday, bringing this week’s total to 621,000 tons.

Futures may rally another 3 to 4 percent before an increase in production weighs on prices, said Kishore Narne, head of research at AnandRathi Commodities Ltd. said. A rally in Malaysian ringgit has increased the cost for buyers, he said.

The ringgit has risen 10.9 percent this year, the best performance among Asia’s 10 most-active currencies. Markets in China, Japan and Hong Kong are closed for holidays.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.