By Claire Leow Jan. 22 (Bloomberg) -- Palm oil slumped as much as 1.7 percent as commodities fell on risk aversion, putting the tropical oil on track for its third weekly loss. April-delivery palm oil dropped as low as 2,447 ringgit ($720) a metric ton, and paused at 2,454 ringgit at the 12:30 p.m. break on the Malaysia Derivatives Exchange. The contract has shed 1.6 percent this week. The Reuters/Jefferies Commodity Price Index lost 0.7 yesterday, extending a 1.3 percent decline the previous day, on concern that the economic recovery may be derailed in China if the country raises interest rates and in the U.S. because of banking curbs proposed by President Barack Obama. China is the largest consumer of edible oils and the China National Grain & Oils Information Center yesterday said vegetable oil purchases may fall to below 9 million tons in 2009-2010 from 9.46 million the previous year because of ample stockpiles. About two-thirds of its imports are palm oil. While palm oil will come under pressure from falling crude oil and soybean prices, supplies may be disrupted by the El Nino weather event which would turn attention back to demand-supply fundamentals, said Nirgunan Tiruchelvam, a plantation analyst at Royal Bank of Scotland Asia Securities (Singapore) Pte. El Nino reduces rainfall and can cause drought in Southeast Asia, where most of the world’s palm oil is produced in Indonesia and Malaysia. El Nino “There are very strong indications El Nino may have already commenced,” he said. Central Pacific Ocean temperatures are “well above El Nino thresholds,” and “generally remain above values observed at the peak of the 2006 El Nino event,” the Australian Bureau of Meteorology said on its website today. “If there is El Nino, the production of crude palm oil will suffer,” Tiruchelvam said. There will be an increase in crude palm oil of “about 10 percent in terms of average prices,” he said, forecasting $750 a ton for most of 2010. Palm oil in Rotterdam averaged $681 a ton in 2009. Soybeans for March delivery on the Chicago Board of Trade swung between gains and losses, losing 0.7 percent to $9.4775 a bushel at 1:47 p.m. Singapore time. The contract fell as low as $9.4075 this week, a loss of 7 percent from the price before the U.S. Department of Agriculture said Jan. 12 that world soybean production in the year from Oct. 1 will be a record 253.4 million tons. Dalian Tumbles Soybean oil for March delivery dropped 1 percent to 36.64 cents a pound at 1:50 p.m. Singapore time. Soybean oil’s premium over palm oil narrowed to $75 a ton this week, the lowest price in at least a year and less than half the 12-month average, according to Bloomberg data. The premium is now at $87.39 a ton. On the Dalian Commodity Exchange, September-delivery soybeans dropped as much as 1.6 percent to 3,837 yuan ($562) a ton, the lowest level for the most active contract since Nov. 24, before trading at 3,847 yuan at 1:59 p.m. in Singapore. Dalian soybean oil for September delivery lost 1.8 percent to 7,306 yuan and palm oil dropped 2.1 percent to 6,676 yuan. To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net

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