18/11/2010 (Bloomberg) - Palm oil plunged the most in more than a year on speculation that price-control measures announced by China, the world's biggest consumer of cooking oils, may slash import demand.

China may impose temporary price controls on "important daily necessities" and production materials to counter the fastest inflation in two years, the State Council said on its website yesterday after a meeting chaired by Premier Wen Jiabao.

The January-delivery contract on the Malaysia Derivatives Exchange slumped as much as 4.8 percent to 3,114 ringgit ($994) a metric ton, the steepest loss since Sept. 28, 2009, and traded at 3,165 ringgit at the 12:30 p.m. trading break.

"The measures may curb China's imports of soybean and edible oils in the near term due to fears that the government may release state reserves into the local market," said Ivy Ng, an analyst at CIMB Investment Bank Bhd. in Kuala Lumpur. "It may prompt traders to liquidate speculative positions due to concern over weaker-than-expected export data," she said.

The Chinese cabinet also pledged to stabilize natural gas prices, crack down on speculation in agricultural goods and ensure supplies of vegetables, grains, cooking oil and sugar.

China's accelerating inflation had sent stocks and commodities sliding earlier this week on speculation that efforts to curb prices will cool the world's fastest-growing major economy. The State Council's announcement came after the Shanghai Composite Index today extended to 10 percent its decline from an almost seven-month high on Nov. 8.

Rate Hike Expected
Borrowing costs in China may be increased tomorrow, according to a report in yesterday's China Securities Journal that cited an unidentified analyst. Rate decisions are often released on Fridays, or around the 20th of the month, the newspaper said. The People's Bank of China set the daily reference rate for yuan trading at 6.6455 per dollar, strengthening it for the first time in four days.

The central bank last month raised interest rates for the first time since 2007 as the government wrestles with inflation that accelerated to a 4.4 percent annual pace in October, mainly driven by food costs. Inflows of cash from trade and investors betting on Chinese growth and gains by the yuan are threatening to fuel price gains.

Palm oil for September delivery on the Dalian Commodity Exchange declined as much as 2.8 percent to 8,352 yuan ($1,258) a ton and soybean oil for delivery in the same month tumbled 3.2 percent to 9,100 yuan a ton.

The Dalian Commodity Exchange said on Nov. 15 that it will curb "abnormal" trading to prevent price manipulation and other activities that disrupt an orderly market.

January-delivery soybean oil gained 0.6 percent to 49.52 cents a pound in Chicago, while soybeans for delivery in the same month rose 0.9 percent to $12.1575 a bushel.

"The price weakness is likely to be temporary as China is unlikely to reduce imports of edible oils and oilseeds for long, given the upcoming festive holidays," said CIMB's Ng, referring to Lunar New Year celebrations in February.