Palm oil futures yesterday tracked crude oil and soybeans lower on concern the global recession will slow demand for its use in food and fuel applications.
Soybean oil is a substitute for palm oil, and changes in the price can influence trends in the tropical commodity. The World Bank has said the global recession this year will be deeper than it predicted in March.
“Crude palm oil price is supported by soybeans” and in the short-term, the “price will slightly decline,” Yohan Setio, a plantation analyst at PT Mandiri Sekuritas in Jakarta, said by telephone.
Palm oil for September shed as much as 2.4 per cent to RM2,231 a ton on the Malaysia Derivatives Exchange. It traded 1.3 per cent lower at RM2,257 at the 12.30 pm local time break.
The world economy will contract 2.9 per cent, more than a previous forecast of minus 1.7 per cent, the Washington-based World Bank said on June 22. It cut next year’s growth forecast to 2 per cent from 2.3 per cent.
Vegetable oils, mostly for cooking, can also be used as alternative fuels when fossil fuels are deemed too costly.
Crude oil in New York dropped as much as 1.7 per cent to US$68.06 a barrel in Asian trading, compared to the year’s high of US$73.23 reached June 11. It was down 0.9 per cent at US$68.63 at 2.29 pm Singapore time.
Analysts including Nirgunan Tiruchelvam of Royal Bank of Scotland Asia Securities (Singapore). say US$70 a barrel of crude oil is a support for palm oil.
Soybean futures in Chicago for November delivery dropped as much as 1 per cent to US$9.95 a bushel before trading at US$9.985 a bushel at 2.33 pm Singapore time in after-hours trading.
Chicago soybean oil for July delivery plunged as much as 2.1 per cent to 36.15 cents a pound, and was down 1.4 per cent at 36.40 cents at 2:34 pm. It is the most consumed edible oil after palm oil.
Yesterday, Vale SA, the world’s largest iron-ore producer, said it will invest US$305 million to produce biodiesel using palm oil for its operations in northern Brazil. The biodiesel will be produced by a venture between Vale and Biopalma da Amazonia SA, Rio de Janeiro-based Vale said.
Palm oil prices may come under pressure in the coming months, Setio said. “Over the next one to two months, crude palm oil price will decline because of the supply outlook,” he said. “In the second half, plantations produce more than in the first half.”
Indonesia and Malaysia are the largest producers of the tropical oil. About 55 per cent of annual output comes in the second half.