05/02/2008 (Bloomberg) - Palm oil surged to a record on speculation supplies for food and alternative fuel will be limited after Indonesia, the world's biggest producer, announced it would raise export taxes if prices climb further.

Indonesia's government, seeking to boost domestic cooking oil supply, said yesterday it would impose a 15 percent tax if palm oil exceeds $1,100 a metric ton, compared with 10 percent below that price. The vegetable oil jumped to a record 3,458 ringgit ($1,070) a ton today.

Higher prices, while spurring inflation in China and other countries, may boost earnings of plantation companies, including Malaysia's IOI Corp., the world's second-largest palm oil producer. Oilseeds and vegetable oils are gaining as demand rises both for cooking oil and biofuels.

``Government intervention may worsen the situation,'' Ben Santoso, a plantation analyst at DBS Vickers Securities in Singapore, said by phone, referring to Indonesia's export tax plans. ``It may reduce supply to the international market.''

Palm oil for April delivery on the Malaysia Derivatives Exchange, the global benchmark, rose for a fifth day, gaining 2.8 percent to 3,431 ringgit at the end of morning trading.

The price of soybean oil, palm oil's main substitute, also rose to a record, gaining for a ninth day to 56.25 cents a pound on the Chicago Board of Trade. The contract for March delivery was up 0.8 percent at 56.20 cents at 1:35 p.m. Singapore time.

``Prices are up on the bullish sentiment for edible oils,'' said futures trader S. Chandran of CIMB Futures Sdn., in Kuala Lumpur. ``We could see 3,520 ringgit palm oil now.''

`Bullish Sentiment'
The graduated Indonesian export tax structure keeps the levy unchanged at 10 percent when the commodity is below $1,100 a ton, according to a statement issued by the Coordinating Ministry for Economic Affairs in Jakarta yesterday. The tax will rise to 20 percent if the price climbs to $1,200 a ton, and to 25 percent if it reaches $1,300 a ton.

``Governments will do something now,'' Santoso said. ``Demand rationing is already happening. You can only spend so much when you walk into a supermarket.''

Soybean oil, produced from crushing soybeans, has risen 84 percent in the past year, while palm oil has gained 76 percent. Soybeans are grown mainly in the U.S., Brazil and Argentina, while Indonesia and Malaysia produce about 90 percent of global palm oil supply.

China, India
U.S. farmers reduced the area planted to soybeans last year to the lowest in 12 years, opting to grow corn instead to benefit from increased demand for ethanol. The soybean harvest in Argentina and Brazil usually peaks in March.

``If yields in South America come in lower than expected, prices of vegetable oils will go up further,'' Santoso said. ``If you add India to the equation, if they lower the import duty on vegetable oils, prices could go up until supply improves in the second half.''

India is the largest consumer of vegetable oils after China.

On China's Dalian Commodity Exchange, soybean oil futures rose to the highest since the contract was introduced, while soybeans advanced close to a record on concerns higher global vegetable oil futures may boost import costs.

Even as China's purchases have seasonally dropped, supplies for near-term shipment from overseas are still difficult to secure, Zhu Feng, manager at Chinatex Corp., said by phone today from Rizhao, Shandong province.

``That's not a good sign,'' Zhu said.

Soybean oil for May delivery in Dalian gained as much as 422 yuan, or 3.8 percent, to a record 11,450 yuan ($1,593) a ton, and traded at 11,412 yuan at 1:50 p.m. local time.

Soybeans for September delivery added as much as 96 yuan, or 2 percent, to 4,856 yuan, and last traded at 4,840 yuan. Futures jumped to a record 4,881 yuan on Jan. 14.

Plantation stocks in Malaysia advanced on prospects for higher palm oil prices boosting earnings growth. IOI gained 25 sen, or 3.4 percent, to 7.55 ringgit, set for its largest gain since Jan. 4. Kuala Lumpur Kepong Bhd., Malaysia's No. 3 planter, added 10 sen, or 0.6 percent, to 17.90 ringgit.