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Palm Oil Posts Biggest Weekly Gain in 5 Months on China Usage

Palm oil had its biggest weekly advance in almost five months on optimism that rising demand in China may strain global supplies curbed by rain and drought in producing countries.

The February-delivery contract rose 0.5 percent to 3,516 ringgit ($1,118) a metric ton on the Malaysia Derivatives Exchange, the highest closing price in more than 28 months. Futures gained 7.4 percent this week, the most since the week ended July 16.

China may import as much as 6.1 million tons of palm oil in the 2010-11 season, from 5.9 million tons the previous year, if the country decides to replenish rapeseed stockpiles, Jennifer Yuan, a researcher at Cofco Ltd., China’s largest grains trader, said at the Bali conference today. Indonesia’s sales value of palm oil to China doubled to $2 billion in the past five years, while sales to India have jumped to about $5 billion in the same period from $1 billion, Trade Minister Mari Pangestu said today.

“In the coming two months, China may need to speed up soybeans and palm oil imports to build up stock and control domestic prices,” Ker Chung Yang, an investment analyst at Phillip Futures Pte., said by phone from Singapore.

Prices of cooking oils will extend a rally as rising global demand exceeds supplies, pushing palm oil to 3,600 ringgit this month, Dorab Mistry, director of Godrej International Ltd., said at the Bali conference.

“The period of greatest tightness will be between February and May 2011 and we need prices to rise now in order to rein in demand and to stimulate plantings,” said Mistry, who correctly predicted in March that prices would exceed 3,000 ringgit after June. Godrej is one of India’s biggest buyers of cooking oils.

Strongest La Nina

Heavy rains caused by a La Nina weather event -- “one of the strongest in decades,” according to Mistry -- have reduced oil-palm yields in Indonesia and Malaysia, the top producers. La Nina has also caused drought that curbed South American planting of soybeans, threatening global edible oil supplies and driving prices higher.

Global palm oil demand is growing 7 percent to 11 percent a year, Bayu Krisnamurthi, Indonesia’s deputy farm minister, said yesterday. Global vegetable oil stocks will equal 13.2 percent of demand in the 2010-11 season, a “critically low level,” the Food and Agriculture Organization said in a report last month.

Palm oil prices will decline in December before resuming a rally from January to April next year, fuelled by the tight supplies, Thomas Mielke, executive director of Oil World, said at the Bali conference.

‘Exceptionally High’

Futures may drop to as low as 2,600 ringgit by June as output recovers and an “exceptionally high” premium over diesel prompts buyers to delay purchases until mid-2011, said LMC International Ltd. Managing Director James Fry.

January-delivery soybean oil gained as much as 0.7 percent to 53.19 cents a pound on the Chicago. Soybeans for delivery in the same month rose as much as 0.5 percent to $12.865 a bushel after dropping as much as 0.5 percent earlier today.

September-delivery palm oil on the Dalian exchange declined 0.2 percent to 9,084 yuan ($1,363) a ton, while soybean oil for delivery in the same month closed 0.3 percent higher at 9,744 yuan a ton. CME Group Inc.’s March palm oil contract fell as much as 1.2 percent to $1,098 a ton.

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