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Palm Drops on Concern Supply May Increase Amid Peak-Output Cycle

Palm oil fell on speculation that the beginning of the high-output cycle in Malaysia may lead to a build-up of stockpiles in the world’s second-largest producer.

The contract for delivery in October dropped as much as 0.7 percent to 2,275 ringgit ($711) a metric ton on the Bursa Malaysia Derivatives, and was at 2,290 ringgit at the close of the morning session in Kuala Lumpur. Futures are set to drop 0.5 percent this week. Palm for local physical delivery in August was at 2,340 ringgit, data compiled by Bloomberg show.

Global supplies of vegetable oils are poised to expand in the 2013-2014 season starting Oct. 1, as production from palm climbs to a record and output from soybeans and sunflower seed jumps, according to Oil World. Malaysia’s palm oil output may exceed 19 million tons this year, more than the record 18.9 million tons in 2011, Alvin Tai and Hoe Lee Leng, analysts at RHB Investment Bank Bhd., wrote in a report today.

“With the high-crop season already here, we believe the crude palm oil price will remain low,” said Tai and Hoe, referring to the July-October period when output is typically the highest every year. “Despite the healthy production, we do not think that there will be an oversupply situation serious enough to cause another price crash this year.”

Global production of palm oil may rise 4.4 percent to a 58.2 million tons from the previous season amid higher supplies from top growers Indonesia and Malaysia, the Hamburg-based researcher Oil World said July 16. Reserves in Malaysia dropped 37 percent to 1.65 million tons in June from a record in December, according to the country’s palm oil board.

Soybean oil for delivery in December was little changed at 45.41 cents a pound on the Chicago Board of Trade. Soybeans for delivery in November gained 0.5 percent to $12.7175 a bushel.

Refined palm oil for January delivery declined 0.3 percent to 5,626 yuan ($916) a ton on the Dalian Commodity Exchange. Soybean oil lost 0.4 percent to 7,242 yuan.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

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

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