Palm Oil Climbs on Speculation Global Recovery May Boost Demand

March 3 (Bloomberg) -- Palm oil rose on speculation that demand will increase as the global economy recovers and output growth may be curbed as El Nino parches plantations.

The May-delivery contract rose as much as 0.8 percent to 2,632 ringgit ($781) a metric ton on the Malaysia Derivatives Exchange before trading at 2,630 ringgit at 3:04 p.m. local time.

Australia’s economy grew 0.9 percent last quarter compared with the previous three months, the Bureau of Statistics said today. That’s the fastest expansion in almost two years. Japan’s wages rose 0.1 percent from a year earlier, the first gain in 20 months, the Labor Ministry said.

Investors are “playing the recovery story,” said Carey Wong, an analyst at OCBC Investment Research Pte. Forecasts by plantation companies in Indonesia and Malaysia indicate that “output growth may not be as strong as what people were expecting” because of the El Nino weather pattern, Wong said.

Indonesia and Malaysia together account for about 87 percent of global palm oil output. El Nino typically produces drier-than-usual weather across parts of Asia, potentially cutting agricultural production.

Exports of the tropical oil from Indonesia, the world’s largest palm oil producer, fell to 1.2 million tons in January, from 1.4 million tons a month earlier, the Indonesian Palm Oil Association said in an e-mailed statement today.

There may be a shortage of palm oil in the next couple of years as El Nino curbs yields, Nirgunan Tiruchelvam, an analyst at Royal Bank of Scotland Asia Securities (Singapore) Pte., said in a Bloomberg Television interview yesterday.

Inventories may decline as more of the commodity is used to make biodiesel, Tiruchelvam said. The stockpile-to-usage ratio may fall to 8 percent from 15 percent, he said.

Palm oil may drop, averaging 2,100 ringgit to 2,300 ringgit a ton in the second half of the year as “massive” crops of rival soybeans from South America enter the market, Scott Briggs, a agricultural commodity strategist at the Australia & New Zealand Banking Group Ltd. said by phone today.

Bloomberg
March 03, 2010, 4:10 AM EST