31/12/2008 (Business Times) - PALM oil futures headed for the worst annual drop since at least 1996, falling for the first time in four years, as stockpiles gained to an all-time high.

The edible oil also slumped as crude oil headed for a record annual drop as a global financial crisis pushed the US, Japan and Europe into a recession, dimming demand prospects for biofuels made from vegetable oils.

“From a fundamental point of view, we’ve had a bumper crop this year which resulted in very large stockpiles,” Yin Shao Yang, an analyst at Aseambankers Malaysia Bhd, said by phone from Kuala Lumpur today.

“On the speculative side, palm oil has not been spared from the deleveraging in commodities.”
 
Palm oil for March delivery fell as much as 1.9 per cent to RM1,639 (US$473) a metric ton on the Malaysia Derivatives Exchange before trading at RM1,659 at 11.51 am local time. The most-active contract is down 46 per cent for the year.

Futures have slumped nearly two-thirds from a record RM4,486 a ton in March as the global recession cut demand. The commodity is 33 per cent cheaper than rival soybean oil, from 6.1 per cent on March 31, according to Bloomberg data.

Stockpiles in Malaysia, the second largest palm oil producer after Indonesia, climbed to a record 2.27 million tons in November, according to the country’s palm oil board December 12. Output reached a record 1.7 million tons.

Crude oil for February delivery fell as much as 1 per cent to US$38.63 a barrel in after-hours electronic trading on the New York Mercantile Exchange today. It last traded at US$38.63 a barrel, down 74 per cent from its record in July.

Palm oil, used mainly in food, tracked crude prices for much of this year as it is economically viable for use as a biofuel when oil trades above US$80 a barrel.

“With crude between US$40 and US$60, there might be a bit of the biofuel catalyst present but at these prices, I would say almost all of the demand for palm oil is edible,” said Yin. - Bloomberg