Palm Oil Declines as Rally to 14-Month High Seen Eroding Demand

Palm oil dropped for the first time in three days on concern that a rally to the highest level in 14 months may weaken demand.

The contract for delivery in February fell 0.4 percent to close at 2,642 ringgit ($819) a metric ton on the Bursa Malaysia Derivatives, after rising as much as 1.5 percent to 2,692 ringgit, the highest level for most-active futures since September 2012. Futures advanced 1.1 percent this week.

Palm oil’s narrowing discount to soybean oil will reduce demand for the tropical oil and divert some Chinese and Indian food demand to seed oils, said James Fry, chairman of LMC International Ltd.. Soybean oil’s premium over palm oil prices narrowed to $99.498 a ton today from $137.0355 a month ago, according to data compiled by Bloomberg.

Shipments from Malaysia fell 2 percent to 1 million tons in the first 20 days of November, data from surveyor Intertek show. Futures entered a bull market on Nov. 1 and are heading for the first annual advance in three years on expectation of a decline in production in Indonesia and Malaysia, the world’s biggest producers, due to heavy rains.

“Prices are down on profit booking ahead of the weekend after the sharp rise earlier,” said Isha Trivedi, an analyst at PhillipCapital India Pvt. in Mumbai. “We can expect declining production for at least the next two months because of the monsoon.”

Refined palm oil for May delivery gained 1.1 percent to close at 6,440 yuan ($1,057) a ton on the Dalian Commodity Exchange, the highest price at close for most-active futures since March 12. Soybean oil climbed 0.4 percent to 7,302 yuan.

Soybeans for January delivery rose 0.5 percent to $12.985 a bushel on the Chicago Board of Trade. Soybean oil fell 0.4 percent to 41.63 cents a pound.

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