29/10/2010 (Bloomberg) - Palm oil declined from a 27-month high after trading at the smallest discount to soybean oil in three weeks, dimming its allure as a substitute.

The January-delivery contract on the Malaysia Derivatives Exchange dropped 0.8 percent to 3,061 ringgit ($982) a metric ton. The contract still gained 1.9 percent for the week, a ninth straight week of gains, for the longest rally since June 2007.

Yesterday, palm oil reached the highest since July 28, 2008, narrowing its discount to soybean oil to $87.05 a ton, the least since Oct. 11. The world’s most-consumed edible oil cost $97.68-a-ton less than Chicago soybean oil today, according to Bloomberg data.

Palm oil “is taking cues from the weak global market” and prices of soybeans and soybean oil in Chicago, said Veeresh Hiremath, associate chief analyst at Karvy Comtrade Ltd., a commodity brokerage based in Hyderabad.

The most-active contract gained 12 percent in October, a fourth straight monthly rise, on speculation that demand for oilseeds from China will remain at a record high while a lack of rain may delay planting of soybeans in Brazil, the second- largest producer after the U.S.

Soybeans traded in Chicago have climbed 11 percent this month, heading for a fourth month of gains. They fell as much as 0.9 percent to $12.2525 a bushel today, and were at $12.255 at 6:16 p.m. Singapore time.

Soybean oil has risen 8.8 percent this month. The contract for December delivery lost as much as 1.8 percent to 48.79 cents a pound today and last traded 1.5 percent lower at 48.95 cents.

China Factor

China, the biggest consumer of soybeans, has increased imports because of rising domestic prices. Consumer prices climbed 3.6 percent in September, the fastest pace in almost two years, the country’s statistics bureau said last week.

Chinese beans are 44 percent costlier than Chicago beans, Bloomberg data show.

Soybeans on the Dalian Commodity Exchange gained 6 percent this month, a fourth month of gains. Dalian soybean oil advanced 10 percent in October, capping a 27-percent rally in the past four months. The contract for September delivery lost 2.6 percent to 9,380 yuan ($1,406) a ton today.

Dalian palm oil gained 8 percent this month, rising for the fourth straight month. Palm oil for May delivery, the most- active contract, declined 1.9 percent to 8,318 yuan a ton today.

China will auction 250,000 tons of cooking oil in the northwestern Xinjiang region from Oct. 27 in a bid to stabilize prices, the State Administration of Grain said yesterday.

CME Group Inc.’s January palm oil contract, pegged to the Malaysian benchmark price, dropped 0.6 percent to $980.50 a ton at 3:15 p.m. in Singapore.

Near-Term Positive

Any decline in palm oil prices may be short-lived as China may step up orders for the Lunar New Year in February, according to a Bloomberg survey of five analysts.

Palm oil prices “will remain positive in the near term,” Hiremath said. “It may take a correction to 3,000 ringgit and may go up and touch 3,200 ringgit in the next 15 days,” he said.

China may import 55 million tons of soybeans in the 2010- 2011 marketing year, 8.9 percent more than the previous year, the U.S. Department of Agriculture forecast on Oct. 8. Inbound shipments in 2009-2010 grew 23 percent from the previous year, the USDA’s data show.

“India consumption demand is very strong,” Hiremath said.

Soybean oil imports by India may slump at least 19 percent next year as a record local harvest of soybeans makes domestic supplies cheaper, GG Patel & Nikhil Research Co. said Oct. 27.