17/03/2011 (Bloomberg) - Palm oil declined to the lowest level in more than three months on concern that global supply will increase and demand for commodities may weaken as Japan’s strongest temblor on record slows global economic recovery.

The May-delivery contract tumbled as much as 2.8 percent to 3,290 ringgit ($1,077) a metric ton, the lowest price since Nov. 26, before closing at 3,368 ringgit. Futures plunged 8 percent last week amid prospects for higher production in Indonesia and Malaysia, the top producers.

“Investors remain concerns about global economy which may be affected by the Japan event and could affect demand,” Ivy Ng, an analyst at CIMB Investment Bank, said by telephone from Kuala Lumpur. “Increasing output from Indonesia and Malaysia remains a bearish factor to the market.”

Japan may enter a brief recession as a result of the quake, Rhee Chang Yong, the Asian Development Bank’s chief economist said in a phone interview yesterday from Manila. A slowdown in world’s third-largest economy, which contracted last quarter, may hurt the outlook for Asian nations including China, Standard & Poor’s Ratings Services said today.

Last week’s 9.0-magnitude temblor and an ensuing tsunami damaged power-generating facilities including the Fukushima Dai- Ichi nuclear plant. Tokyo Electric Power Co. has begun rolling blackouts that will continue until the end of April to conserve electricity.

Price May Fall
Palm oil prices will retreat this year on speculation that world consumption of the vegetable oil will drop and production will increase, according to Oil World. Cash prices may fall to $950 a ton in the three months to Dec. 31, down from a high of about $1,300 last month, Oil World said in a report.

“The most important factor is a slowing-down of the growth in world consumption for both food and non-food use,” Oil World executive director Thomas Mielke said in a presentation on March 9, according to the report. “There will be relief on the supply side from the prospective sharp increase in world production of palm oil.”

Increased output of oils made from soybeans and sunflowers in South America will also pressure prices, Oil World said.

World production of palm oil may increase 6.6 percent to 48.7 million tons in 2011, Oil World said. Malaysian output will total 17.7 million tons, near the previous record set in 2008, as area increased by at least 6 percent, the forecaster said. Indonesia’s production may rise 8.2 percent to as much as 23.8 million tons, the Oil World said.

May-delivery soybean oil gained 2.4 percent to 54.15 cents a pound in Chicago at 6:28 p.m. in Singapore after falling as much as 4.5 percent yesterday. Soybeans for delivery in the same month advanced 2.5 percent to $13.0175 a bushel.

September-delivery palm oil on the Dalian Commodity Exchange declined 1.2 percent to close at 8,948 yuan ($1,362). Soybean oil for delivery in the same month fell 1.4 percent to close at 9,806 yuan. CME Group Inc.’s most-active June palm-oil contract, pegged to the Malaysian benchmark price, dropped 1.9 percent to $1,088 at 3:48 p.m. Singapore time.