Palm Oil Falls as Slowing Demand May Expand Malaysian Reserves

Palm oil dropped for the first time in four days on speculation that stockpiles in Malaysia, the world’s second-largest producer, may begin to climb from this month as demand slows for the world’s most consumed cooking oil.

The contract for September delivery fell 0.3 percent to close at 2,378 ringgit ($741) a metric ton on the Bursa Malaysia Derivatives. Futures gained 1.8 percent last week. Palm for local physical delivery in July was at 2,390 ringgit, data compiled by Bloomberg show.

“I’m not seeing any aggressive demand coming in,” Rajesh Modi, a trader at Sprint Exim Pte., said by phone from Singapore. “From July onwards, stocks may start to build up.” Production typically increases from July to October each year.

Reserves in Malaysia fell 3.7 percent to 1.75 million tons in June from a month earlier, the least since June 2012, a Bloomberg survey published last week showed. Output rose 6.2 percent to 1.47 million tons and exports gained 4.1 percent to 1.47 million tons, according to the survey. Official data by the Malaysian Palm Oil Board is scheduled for release on July 10.

India, the biggest palm oil buyer, may switch to soybean oil after a decline in prices, Modi said. The two edible oils are substitutes in food and fuel uses.

Shrinking Discount

Palm oil’s discount to soybean oil shrank to $253.44 a ton on June 27, the smallest since August. Soybean oil on the Chicago Board of Trade declined to 44.60 cents a pound on June 28, the lowest level since October 2010. The contract for delivery in December lost 0.4 percent to 45.86 cents, while soybeans for delivery in November gained 0.5 percent to $12.3425 a bushel.

Palm oil inventory at China’s major ports total 1.15 million tons, 20,000 tons less than a week ago, state-owned researcher said in a report today. Demand for palm may rise as it’s cheaper than other oils, it said.

Refined palm oil for January delivery fell 0.7 percent to close at 5,850 yuan ($954) a ton on the Dalian Commodity Exchange, while soybean oil for delivery in the same month lost 1.1 percent to end at 7,238 yuan.

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