Palm Oil Futures Drop a Second Day on Indian Purchasing Outlook

June 3 (Bloomberg) -- Palm oil futures in Malaysia dropped for a second day on concern that imports by India, the largest buyer of cooking fat after China, will slow.

India may slow the pace of purchases after stockpiles surged on record imports, Govindlal G. Patel, who has traded vegetable oil for four decades, said in an interview yesterday. Edible oil reserves probably rose 55 percent to 1.7 million metric tons in the seven months to May, on year, he said.

“The market looks ahead -- 2010 crude palm oil price is almost certain to be lower than this year” barring weather surprises, Alvin Tai, an analyst at OSK Research Sdn., wrote in an e-mail referring to the Indian impact on prices.

Palm oil for August delivery on the Malaysia Derivatives Exchange fell as much as 0.8 percent to 2,577 ringgit ($741) a ton. It traded at 2,581 ringgit at the 12:30 p.m. break.

Indian buying had helped Malaysia’s palm oil stockpiles in April decline to 1.29 million tons, the lowest since June 2007 and 43 percent lower than November’s record of 2.27 million tons, according to data from the nation’s Palm Oil Board.

Reserves in Indonesia, the No.1 producer, have fallen to less than 1 million tons, Palm Oil Board Deputy Chairman Derom Bangun said on May 29.

Palm oil has rallied 52 percent this year on concern that the supply of soybeans, crushed to produce soybean oil, may drop in Argentina due to drought, and as U.S. stockpiles are forecast at a five-year low. Soybean oil is a rival oil and substitute and lower supplies could boost palm oil demand.

Soybeans for July delivery in Chicago dropped 0.4 percent to $12.0375 a bushel at 12:33 p.m. Singapore time, while soybean oil eased 0.9 percent to 40.12 cents a pound.

Crude Oil

The palm oil rally may cool to between 2,550 ringgit and 2,800 ringgit a ton for the next two months, Rafdi Prima, a technical analyst at PT Mandiri Sekuritas, said yesterday.

The commodity may drop as low as $580 a ton if crude oil tumbles to $45 a barrel by November should the world economic recovery falter, according to James Fry, an economist at LMC International Ltd., which tracks the world’s main oilseeds.

China, the biggest user, may slow buying, Fry said on May 29.

Palm oil in Dalian dropped for the first time in three days today, easing 0.6 percent to 6,918 yuan ($1,013) a ton at the 11:30 a.m. trading pause. It had exceeded 7,000 yuan yesterday for the first time since May 13.

Crude oil in New York was little changed at $68.54 a barrel at 12:11 p.m. in Singapore. Crude prices, which have advanced 54 percent this year, can influence trends in palm oil as the vegetable oil can be used to make biofuel.

There are more than 200 million barrels of excess crude in the market in addition to 130 million barrels held on tankers at sea, Hasan Qabazard, Director of Energy Research at the Organization for Petroleum Exporting Countries, said yesterday.

This “overhang” of oil was more than the five-year average, he said. Still, it may clear if an economic recovery spurs demand by the year’s end, he added.

The International Energy Agency forecast in May that 2009 will see the biggest drop in world oil use since 1981. A day earlier, OPEC cut its outlook for 2009 demand for a ninth month.