20/04/2011 (Business Times) - Palm oil dropped on concern that increasing supplies from Indonesia and Malaysia, the world’s largest growers, may boost cooking oil inventories.

The July-delivery contract fell as much as 1.1 per cent to RM3,212 ($1,062) a metric ton on the Malaysia Derivatives Exchange, and traded at RM3,232 a ton at 4.24 pm in Kuala Lumpur.

Futures have slumped 19 per cent from a 35-month high of RM3,967 a ton on Feb 10, on speculation global palm oil output may gain this year on improving weather.

The La Nina phenomenon will start to weaken in the equatorial Pacific in April, normalising weather in Malaysia and bringing levels of rain that should favor oil palms, the country’s Meteorological Department said on April 13.

“Due to the favorable weather, Malaysia and Indonesia could have further increase in April output, raising concerns that stock levels in Malaysia could be higher than estimated,” Ker Chung Yang, an analyst at Phillip Futures Pte, said by e- mail from Singapore.

Production in March in Malaysia gained 29 per cent from February to 1.42 million tons, the steepest monthly gain since June 1999, according to data from the Malaysian Palm Oil Board.

Inventory of the edible oil, used mostly in food, climbed 9 per cent to 1.61 million tons in March, the highest level since December, it said on April 11.

World palm-oil production is forecast to increase to 48.5 million tons in 2011 from 45.6 million tons industry forecaster Oil World said on March 29.

Output in Indonesia may climb to 23.8 million tons from 22 million tons, and Malaysia’s harvest may advance to 17.7 million tons from 17 million tons, it said. - Bloomberg