Palm Drops on Concern Stockpiles May Climb as Output Set to Peak

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 1.5 percent to close at 2,257 ringgit ($706) a metric ton on the Bursa Malaysia Derivatives. Futures declined 1.9 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 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 45.37 cents a pound on the Chicago Board of Trade. Soybeans for delivery in November was little changed at $12.6975 a bushel.

Refined palm oil for January delivery declined 0.8 percent to 5,596 yuan ($912) a ton on the Dalian Commodity Exchange, the lowest price at close for the most-active contract since July 2009. Soybean oil lost 0.7 percent to end at 7,220 yuan.

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