Palm Oil Declines as Investor Demand Wanes on China Concerns

Palm oil fell as signs that economic expansion in China, the largest edible oil user, may be cooling damped investor appetite for the commodity.

September-delivery futures lost as much as 1.3 percent to 2,342 ringgit ($724) a metric ton on the Malaysia Derivatives Exchange before closing at 2,346 ringgit. The contract yesterday touched 2,338 ringgit, the lowest price for the most-active contract since Nov. 17.

China’s Purchasing Managers’ Index declined for a second month, falling to 52.1 from 53.9 in May. The median forecast in a Bloomberg News survey of 12 economists was 53.2. An HSBC Holdings Plc manufacturing index slid to a 14-month low.

“There were some worries about slowing economic growth, especially in China,” Carey Wong, an analyst at OCBC Investment Research, said by phone from Singapore today. “Speculators are staying out of the market.”

Spain’s top credit ranking was placed on review for a possible downgrade by Moody’s Investors Service as the country prepares to sell as much 3.5 billion euros ($4.3 billion) of five-year notes today.

“Deteriorating” growth prospects and challenges in meeting fiscal targets mean Spain’s Aaa classification may be lowered by as much as two grades, Moody’s analysts including Senior Vice President Kristin Lindow in New York said yesterday in a statement. The review will be concluded within a three-month period, the ratings company said.

Concerns that the Europe debt crisis may spread, derailing economic growth in the world’s biggest biodiesel market, also placed pressure on palm oil, used as a feedstock for the alternative fuel, OCBC’s Wong said.

Investors are waiting for “some clarity on the economic outlook because the issue in the EU could potentially have a knock-on impact on the rest of the world,” he said.

Slower economic growth may also prompt governments in Europe to cut down on subsidies for biodiesel production, curbing demand for vegetable oils, Wong said.

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