11/05/2010 (San Francisco Chronicle) - Palm oil futures dropped as crude oil fell on renewed concerns about Europe's handling of Greece's sovereign debt crisis.

July-delivery palm oil declined as much as 1.3 percent to 2,496 ringgit ($781) a metric ton on the Malaysia Derivatives Exchange at 5:41 p.m. in Kuala Lumpur.

Crude oil fell 0.9 percent to $76.15 on concern that Europe's almost $1 trillion bailout package may not be sufficient to end the region's fiscal problems. Lower crude oil prices dim the prospects for biofuels made from vegetable oils.

"Palm oil demand from the energy or biodiesel segment in the EU is expected to remain weak" and "any upside to crude palm oil prices would also be capped due to weak crude oil prices," said an AmResearch Sdn. report.

Market weakness is also pushing soybean oil prices lower, diminishing the appeal of palm oil, the cheapest edible oil, analysts said. The price of soybean oil, the main substitute for oil palm products, declined in the past month after the South American crop was harvested.

Soybean oil for July delivery in Chicago fell 0.2 percent to 38.31 cents a pound at 4:54 p.m. Its premium over palm oil was last at $64.25 a ton after narrowing 26 percent yesterday, according to Bloomberg data.

Malaysian palm oil exports fell to 1.28 million tons last month from a revised 1.4 million tons in March, the Malaysian Palm Oil Board said yesterday.

'Demand Rebalancing'

The drop "could be due to some demand rebalancing happening, since the discount between crude palm oil and soy oil has narrowed," said Hoe Lee Leng, an analyst at RHB Research Institute Sdn. "Price-sensitive markets like India" may be switching to soybean oil, he said.

Palm oil may trade between 2,300 ringgit and 2,700 ringgit in the second quarter "as the upside will be capped by the bumper soybean harvest in South America," said Ivy Ng, a plantation analyst at CIMB Investment Bank Bhd.

Palm oil exports from Malaysia to India dropped 25 percent in the first four months of the year, she said.

Demand from China, the largest user of edible oils, may also be waning. Malaysian palm oil exports to China in the first 10 days of this month dropped to 73,400 tons from 94,500 tons in the same 10-day period in March, independent market surveyor Intertek said yesterday.

Palm oil dropped 0.7 percent to 6,750 yuan ($989) a ton on the Dalian Commodity Exchange. Soybean oil fell 0.7 percent to 7,678 yuan.-Bloomberg-