Palm oil fell for a fifth day to the lowest level in almost two months on concern that demand for the tropical oil used in everything from food to fuel may shrink on increasing supplies of soybean oil.

The contract for March delivery retreated as much as 0.8 percent to 2,540 ringgit ($775) a metric ton on the Bursa Malaysia Derivatives, the lowest price for the most active futures since Nov. 12, and was at 2,541 ringgit at 12:27 p.m. in Kuala Lumpur. Futures are down 4.3 percent this year.

Global inventories of soybeans may be 71.46 million tons, more than the 70.62 million tons estimated by the U.S. Department of Agriculture in December, a Bloomberg survey showed. That may boost supplies of soybean oil, which competes with palm for use in food and fuel.

“Palm oil is currently facing downward pressure mainly brought about by weakening U.S. and China soybean markets,” said Tan Chee Tat, an analyst at Phillip Futures Pte., in Singapore. “Palm oil’s narrowing discount to soybean oil had encouraged substitution, shifting away some demand from palm oil to soybean oil in terms of food and biodiesel uses.”

Soybean oil tumbled to the lowest level since July 2010 yesterday in Chicago, narrowing its premium over palm oil to $58.17 a ton, compared with an average of $238.71 in the past year, according to data compiled by Bloomberg. Soybean oil for March delivery retreated 0.2 percent to 37.85 cents a pound on the Chicago Board of Trade today, while soybeans dropped 0.3 percent to $12.7225 a bushel.

Refined palm oil for May delivery slumped as much as 2.2 percent to 5,804 yuan ($959) a ton on the Dalian Commodity Exchange, the lowest level for futures since Oct. 15. Soybean oil dropped as much as 0.6 percent to 6,574 yuan, the lowest price since April 2009.

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

Source : Bloomberg