29/04/2010 (Bloomberg) - Palm oil slumped for a third day as crude oil declined amid concern that the debt problems in Greece and Spain may weaken the euro and derail the world’s economic recovery.

The contract for July delivery fell as much as 1.1 percent to 2,520 ringgit ($786) a metric ton on the Malaysia Derivatives Exchange and closed 0.6 percent lower at 2,531 ringgit.

“Crude palm oil seems to be trading in line with oil,” said Nirgunan Tiruchelvam, a commodities analyst at The Royal Bank of Scotland Asia Securities (Singapore) Pte.

Palm oil has tracked crude’s weekly movements for the past 11 weeks as confidence over an economic recovery fueled optimism energy demand would rise to boost demand for biofuels.

Crude oil in New York had fallen as much as 4.5 percent this week amid concerns over the euro and the slump in equities. It traded at $84.39 a barrel at 6:05 p.m. Singapore time to trim the week’s loss to 0.9 percent. The MSCI World Index has lost 2.1 percent this week, and is at 1,199.9 points.

Biofuel demand would be needed to soak up imminent supply, said Herman Koeswanto, an analyst at PT Andalan Artha Advisindo Sekuritas in Jakarta.

“In the last three or four years, there were around one million hectares of additional plantings both in Indonesia and Malaysia implying 30 percent to 35 percent potential production growth or around 7 to 8 percent annual growth,” he said.

If biodiesel use doesn’t expand, “I am afraid there would be over-supply on crude palm oil, which could dampen the strengthened price, considering core demand growth only around 6 percent globally,” Koeswanto said.

Palm oil will average 2,640 ringgit this year, he estimated. Prices averaged 2,240 ringgit in 2009 and 2,558 ringgit so far this year, according to Bloomberg data.

Soybean Oil Premium

Soybean oil in Chicago for July delivery rose 0.6 percent to 39.14 cents a pound after losing 2.4 percent in the past three days. It now fetches a premium over palm oil of $69.54 a ton, according to data on the Bloomberg. Yesterday, the premium narrowed to a three-week low of $66.32 a ton, less than half the 12-month average of $130.45, the data shows.

In China, the largest consumer of edible oils, Dalian palm oil declined for a second day, losing 0.7 percent at 6,916 yuan ($1,013) a ton. Dalian soybean oil declined 0.5 percent to 7,830 yuan per ton.

China’s soybean imports between April and June may reach a record 14 million tons, the China National Grain & Oils Information Center said yesterday. Inbound shipments of palm oil may total 318,000 tons in April, it said.