March 9 (Bloomberg) -- Palm oil futures dropped from a two- month high as a decline in soybean and crude oil prices reduced the prospects of the vegetable oil as a bio-fuel.
The May-delivery contract dropped as much as 0.5 percent to 2,695 ringgit ($807) a metric ton and paused at 2,710 ringgit at 12:30 p.m. in Kuala Lumpur. The most-active contract closed at 2,709 ringgit a ton yesterday, the highest price since Jan. 6.
“The decline today has got to do more with the easing of crude oil prices and soft soybean prices,” said Krishna Reddy, an analyst at Way2Wealth Commodities Pvt. in Mumbai. “I would view this as a temporary phenomenon as reduced supplies will ensure the rally continues.”
Crude oil for April delivery fell 0.5 percent to $81.47 a barrel at 12:53 p.m. in Kuala Lumpur as the dollar strengthened and analysts forecast an increase in U.S. crude supplies last week, signaling that fuel demand in the biggest energy user may be slow to recover.
Palm oil may climb as much as 22 percent in the first half as drier-than-usual weather curbs output in Malaysia and yields in Indonesia, the top producers, Anne Frick, vice president for research at Prudential Bache Commodities LLC said in an interview yesterday.
The El Nino weather phenomenon may drive prices to as much as 3,300 ringgit ($988) a ton, she said. Malaysian output may not meet demand for local use and exports, Frick said.
Rally ‘Capped’
The rally in palm oil may still be “capped” by the large soybean crop in Latin America and rising inventory of oilseeds in India, said Atul Chaturvedi, chief executive of Adani Wilmar Ltd., the Indian unit of the world’s top palm oil trader, said yesterday. Brazil may harvest 66.5 million tons of soybeans, and Argentina 55 million tons, Informa Economics Inc. has said.
Soybeans for May delivery dropped as much as 0.4 percent to $9.445 a bushel before trading at $9.4455 at 11:57 a.m. Soybean oil’s premium over palm oil has shrunk to an 11-month low of $76.31 a ton from the 12-month average of $139.1, according to Bloomberg data.
Sime Darby Plantation Sdn., the world’s biggest palm oil producer, expects the company’s output to fall below target this year due to adverse weather conditions, Managing Director Azhar Abdul Hamid said today.
Production may be “a bit down” this year, he told reporters in Kuala Lumpur. The company’s crude palm oil output in Malaysia and Indonesia may be 6 percent below its forecast of 2.4 million tons, Azhar said.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net
