07/06/2010 (Bloomberg) - Palm oil futures posted the biggest drop in eight days as crude oil extended a slump, hurting the viability of biodiesel.

Crude oil fell for a second day on concern that the government debt crisis in Europe will widen and after the U.S. added fewer jobs than forecast last month, slowing a recovery in fuel demand.

Palm oil for August-delivery dropped 1 percent to 2,449 ringgit ($738) a metric ton on the Malaysia Derivatives Exchange, erasing gains from last week, when investors speculated that higher Malaysian exports last month may have reduced stockpiles for a fifth consecutive month.

“Short-term, it remains uncertain,” said Leow Huey Chuen, a plantation analyst at UOB Kay Hian Malaysian Holdings Sdn.

Palm oil, used in food and biofuels, lost 4.8 percent in May as crude fell 14 percent. Crude oil slipped to less than $70 a barrel today, losing as much as 2.8 percent to $69.51 a barrel before trading at $71.37 at 6:13 p.m. Singapore time.

Crude oil needs to be at more than $70 a barrel to make biodiesel viable, said Nirgunan Tiruchelvam, an analyst at Royal Bank of Scotland Asia Securities (Singapore) Pte.

Under the European Union’s Renewable Energy Directive, issued in June 2009, the 27 member states are obliged to meet 5.75 percent of their road-transport fuel needs using renewable energy, including biofuels, this year, rising to 10 percent by 2020. The EU is the second-largest buyer of Malaysian palm oil.

Palm oil gained 0.7 percent last week after May export estimates pointed to higher demand and a drop in inventory.

Export Data
CME Group Inc.’s September-delivery palm oil contract, which is pegged to the Malaysian benchmark price, fell a third day, sliding 0.6 percent to $727.50 a ton.

On the Dalian Commodity Exchange, January-delivery palm oil slumped 2.8 percent to 6,442 yuan ($943) a ton after falling to the lowest since Nov. 17 earlier. Dalian soybean oil declined 2.1 percent to 7,434 yuan a ton.

The country’s official palm oil export and stockpile data for May are due to be released on June 10. Preliminary estimates from two independent surveyors, Intertek and Societe Generale de Surveillance, showed that exports from the second-largest producer expanded in May, led by purchases from India and China, the biggest users.

Shipments increased 13 percent from the previous month to 1.33 million tons, Intertek said on May 31. SGS estimated that there was an 8.6 percent gain to 1.32 million tons.

Still, Chinese orders may slow in June, the China National Grain & Oils Information Center said today. China may import 241,000 tons of palm oil this month, down from an estimated 362,000 tons in May, it said.

No Hurry
“Medium and long term, it’s still back to demand and supply,” Leow said, adding that she anticipates prices to hold “firm” because “producers are not in a hurry to sell.”

Palm oil could trade between 2,600 and 2,700 ringgit by August and September, she said. That’s when demand typically picks up as annual festivals in China, India, Pakistan and Indonesia, the most populous Asian countries, trigger higher cooking oil use.

Pakistan, the third-biggest importer of palm oil, may double its purchases of crude product after the government reduced an import duty in its federal budget announcement on June 5.

“As crude imports double because of the duty reduction, the import of refined palm oil and refined oilseed will fall by the same amount because of an increase in sales tax,” Ikram Chaudhry, secretary of the Pakistan Edible Oil Refiners Association, said today.

Pakistan reduced the import duty on crude palm oil to 8,000 rupees ($105.20) a ton, from 9,000 rupees with immediate effect. It also increased the rate of sales tax levied on the import of all commercial goods by one percentage point to 17 percent from July 1.

In May, Pakistan’s imports of Malaysian palm oil dropped 30 percent to 107,600 tons, cargo surveyor Societe Generale de Surveillance said on May 31.