PALM oil futures traded in Malaysia dropped yesterday, reversing earlier gains, on concern that higher second-half production will swell stockpiles and depress prices.

The price of the world’s most traded vegetable oil may stay below RM2,000 ringgit a metric ton as output climbs faster than demand, according to Maybank Investment Bank Bhd. and OSK Research.

Palm oil for September delivery on the Malaysia Derivatives Exchange slid 1 per cent to RM1,990 a metric ton, the first time since March 30 that it has closed below RM2,000.

The contract has slumped 17 per cent in the past month. Stockpiles in Malaysia, the world’s No.2 producer, grew to 1.41 million tons in June, up 2.5 per cent from May, the country’s Palm Oil Board said on July 10. Output climbed 3.6 per cent.

“The market is presently worried about rising production and export prospects in the second half,” Ong Chee Ting, an analyst at Maybank, wrote in a report. “We anticipate China’s and India’s pace of import growth to slow in the second half as these countries have stockpiled sufficiently in recent months.”

Prices may average around RM1,800 a ton in the second half, said Ong. Palm oil averaged RM2,192 in the first six months of this year.

Palm oil also tracked a broader drop in other commodities. Soybeans, crushed to make soybean oil, a direct substitute for palm oil, slid 1.1 per cent to US$$9.0725 a bushel on the Chicago Board of Trade at 6:44 pm.

Crude oil for August delivery in New York dropped 0.22 per cent to US$60.02 a barrel at 6.45 pm Singapore time after falling as low as US$58.88 earlier.

Palm oil and other vegetable oils can be used for alternative energy and often track crude oil prices.

Source : Business Times