Palm Oil Posts First Annual Gain Since 2010 as Demand Surges

Palm oil capped the first annual increase in three years as demand climbs for the vegetable oil used in everything from noodles to biofuel amid a drop in production in Indonesia, the world’s biggest supplier.

The contract for March delivery rallied 1.1 percent to close at 2,660 ringgit ($811) a metric ton on the Bursa Malaysia Derivatives, the highest price at close since Dec. 6. Futures gained 9 percent this year, the first annual gain since 2010.

Palm entered a bull market in November as output fell at plantations in Indonesia and biodiesel demand increased. Prices may advance to 3,000 ringgit by March as demand climbs, according to Dorab Mistry, director at Godrej International Ltd. Indonesian output will decline by 500,000 tons to 27.5 million tons this year, before rebounding to 30.5 million tons in 2014, said Mistry. That would be the first drop since 1998, according to data from the U.S. Department of Agriculture.

“Demand for palm oil has been higher in food as well as fuel this year,” said Prathamesh Mallya, an analyst at AnandRathi Commodities Ltd. in Mumbai. “Production will be lower in Malaysia in 2014 on rains, which will drive prices higher.”

Exports from Malaysia, the world’s second-biggest producer, fell 1.1 percent to 1.43 million tons this month from November, Intertek said today.

Soybean oil for March delivery rose 0.6 percent to 39.18 cents a pound on the Chicago Board of Trade. Soybeans fell 0.2 percent to $13.06 a bushel.

Refined palm oil for May delivery fell 0.5 percent to 6,038 yuan ($997) a ton on the Dalian Commodity Exchange. Soybean oil decreased 0.8 percent at 6,850 yuan.

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