Palm Oil Slumps Most in 15 Months as China Moves to Curb Prices

Palm oil plunged the most in more than 15 months on concern that China’s plans to cool domestic prices by selling cooking-oil stockpiles will reduce demand from the world’s biggest user of the commodity.

The contract for delivery in February fell 4.3 percent to 3,184 ringgit ($1,026) a metric ton at close on the Malaysia Derivatives Exchange in Kuala Lumpur, the most since Aug. 17, 2009. September-delivery futures on the Dalian Commodity Exchange lost as much as 3.3 percent to 8,538 yuan ($1,286) a ton, before closing at 8,558 yuan.

China’s government will increase packaged grain and cooking oil stockpiles for timely release onto the market, Nie Zhenbang, director of the State Administration of Grain, said on Nov. 19. The country will also sell soybeans and vegetable oil from its stockpiles starting this week to cool prices, the agency said in a separate statement that day.

“China’s measures to control inflation are impacting not just the palm oil market but all commodity markets,” said Ben Santoso, analyst at DBS Vickers Securities (Singapore) Pte. in Singapore. “It’s going to be a wait-and-see strategy as price- control operations lasted about two months in 2008.”

The People’s Bank of China on Nov. 19 ordered a 50 basis point increase in the amount of money that lenders must keep aside to cool the fastest rise in consumer prices in two years.

“Any release of stockpiles will eventually have to be restocked because of demand prospects, hence driving up prices again,” Bernard Ching, an analyst at ECM Libra Capital Sdn., said in a report today. “At the current juncture where supplies of soybeans and crude palm oil are vulnerable, it would be all the more difficult to keep prices suppressed.”

Exports Slow

Palm-oil exports from Malaysia, the second-biggest producer, rose 12 percent to 1.05 million tons in the first 20 days of the month compared with the same period in October, Intertek said. Shipments slowed from a 26.6 percent gain in the first 15 days of the month, data from the surveyor show. Exports gained 18.3 percent to 1.1 million tons, rival Societe Generale de Surveillance said.

“Exports will slow as Diwali demand is over and Chinese New Year is sometime away,” said Santoso. “Palm oil may pause for a while from the recent run-up or correct a bit.”

Palm oil fell 0.8 percent last week, snapping an 11-week rally that drove prices to more than a two-year high.

Edible-oils demand from China normally increases in the months before the Lunar New Year holiday in February.

Heavy Rainfall

Malaysia has no plans to change its 2010 palm-oil output forecast even as the La Nina weather event may impact harvest, Industries and Commodities Minister Bernard Dompok said in Kuala Lumpur today. Production may total 17.8 million tons, according to a government report on Oct. 15.

Rainfall in Malaysia may be as 40 percent above normal in November and December, the state forecaster said in an e-mailed response to Bloomberg News. Rain over the northern and eastern coast states of Peninsular and Sabah will be slightly above the long term average, it said.

January-delivery soybean oil jumped as much as 1.7 percent to 50.14 cents a pound in Chicago and traded at 49.36 cents at 6:10 p.m. in Singapore, while soybeans for delivery in the same month rose as much as 1.7 percent to $12.22 a bushel and was at $12.11 a bushel at 6:11 p.m. in Singapore.

Soybean oil September delivery in Dalian slumped as much as 3 percent to 9,230 yuan a ton and ended at 9,254 yuan. CME Group Inc.’s March palm oil contract, pegged to the Malaysian benchmark price, climbed as much as 2.3 percent to $1,055 a ton.

-- With assistance from Ranjeetha Pakiam in Kuala Lumpur. Editors: Ravil Shirodkar, Richard Dobson

Before it's here, it's on the Bloomberg Terminal. LEARN MORE