Palm Oil Advances to 14-Month High as Reserves Seen Declining

Palm oil rallied to the highest level in 14 months on expectations that increasing biodiesel usage in Indonesia may trim stockpiles in the world’s largest producer amid a fall in output.

The contract for delivery in February advanced 0.6 percent to 2,656 ringgit ($822) a metric ton on the Bursa Malaysia Derivatives, the highest price at close since September 2012. Futures have climbed 8.9 percent this year, set for the first annual increase in three years.

Palm inventories in Indonesia, the biggest supplier, probably stood at 2.04 million tons in October compared with 2.6 million tons a year earlier, according to the median of estimates from five plantation executives, traders and refiners compiled by Bloomberg. Indonesia must increase biodiesel demand to boost use of palm oil and relevant ministries should discuss the formulation of policy to this effort, Indonesian President Susilo Bambang Yudhoyono said today.

“Indonesian stockpiles are likely to be lower than last year because of the weaker production and the stronger demand both internally and externally,” said Tan Chee Tat, an analyst at Phillip Futures Pte in Singapore. “Internally, it would be from the domestic biodiesel program and externally, it would be stronger demand from China.”

Palm output in Indonesia will drop 1.9 percent to 26.5 million tons this year, according to the median of five grower estimates compiled by Bloomberg, after rains and drought. That’s the first drop since 1998, according to data from the U.S. Department of Agriculture, which sees a 28.5 million ton crop. China is the world’s largest importer after India.

Soybean Loss

Soybean oil for January fell 0.9 percent to 40.25 cents a pound in Chicago yesterday, dropping for a fourth day and extending this year’s loss to 19 percent. The most-active price touched 39.2 cents on Oct. 2, the lowest since July 2010. Soybeans dropped 0.7 percent to $13.20 a bushel in Chicago yesterday. U.S. markets are closed today for a holiday.

Refined palm oil for May delivery closed little changed at 6,318 yuan ($1,037) a ton on the Dalian Commodity Exchange. Soybean oil retreated 0.3 percent to end at 7,254 yuan.