13/07/2010 (Bloomberg) - Palm oil dropped for the first time in four days on concern supplies of edible oils will increase in the second half, helping stockpiles rise from a 10-month low.

Futures for September delivery lost as much as 0.4 percent to 2,330 ringgit ($727) a metric ton on the Malaysia Derivatives Exchange and paused at 2,338 ringgit at the midday break. The price has averaged 2,506.6 ringgit so far this year.

Stockpiles in Malaysia, the second- largest producer, fell 7.1 percent in June from May to 1.45 million tons, the country's Palm Oil Board said yesterday. Output rose 2.5 percent to 1.42 million tons. Still, inventories are 3.3 percent higher from a year earlier, said Alvin Tai, an analyst at OSK Investment Bank Sdn. That implies a "slight bearish bias" for palm oil, which may average 2,250 ringgit this year, he said.

"Production should continue to strengthen from here, albeit at a slightly muted pace," Bernard Ching, an analyst at ECM Libra Investment Research, said in a report today. "The industry is going into the peak production cycle."

Increased output and the "bearish news from the soybean market, which is flooded with supplies, should keep crude palm oil tightly range bound," he said. Palm oil may trade at 2,200 ringgit to 2,500 ringgit for the rest of the year, he said.

South America harvested a record soybean crop that will be crushed for meal and oil in the coming months. Palm and soybean oils are substitutes and together make up more than 60 percent of global edible oils supplies and demand.

Soybeans in Chicago for November delivery dropped as much as 0.5 percent to $9.4675 a bushel, and were at $9.47 at 11:33 a.m. Singapore time.

CME Group Inc.'s September-delivery palm oil contract, which is pegged to the Malaysian benchmark price, gained 0.4 percent to $724 a ton yesterday.

On the Dalian Commodity Exchange, January-delivery palm oil climbed 0.6 percent to 6,364 yuan ($939) a ton in Shanghai while soybean oil gained 0.3 percent to 7,446 yuan at the 11:30 a.m trading break.