Malaysian CPO futures on 29 Aug '08

Wilmar may rebound to around $4.

Soybean oil's premium to palm oil, the widest in more than 6 years, may halve as output of palm oil peaks in Indonesia and Malaysia and a price plunge attracts buyers, said Dorab Mistry, director at Godrej International Ltd.

"Soybean oil will come down with the accumulation of stocks in Argentina,'' said Mistry, who has traded edible oils for more than 30 years. The gap will shrink to its "traditional level of US$70-US$90 a ton from about US$200 now," he said.

The 2 vegetable oils, used in cooking and for alternative fuel, are the most consumed in the world. The US, Brazil and Argentina are the biggest growers of soybeans, which are crushed to make oil, and Indonesia and Malaysia produce most of the world's palm oil. China and India are the largest users.

"I expect a dramatic fall in the soybean oil premium starting from Oct," said Dinesh Shahra, MD of Ruchi Soya Industries Ltd., India's biggest edible oil importer. "Palm oil prices may stabilize or even rise with a decline in production."

Soybean oil was 56% more expensive than palm oil today as measured by the most active contracts on CBOT and BMD. The gap widened to 69% on Aug 26, the most since at least Jan '02, according to data compiled by Bloomberg.

Reduced supplies from Argentina, the 3rrd-biggest soybean exporter, as farmers protested against export taxes, helped push soybean oil up 6 percent in the past 5 months. Increasing inventories sent palm oil down 23% in the same period.

These no demand for soybean oil at all,'' Mistry said in a phone interview from Kuala Lumpur Aug 26. "We have seen good demand coming in at the lower levels for palm oil."

Mistry said Aug 25 that each of his price forecasts in the past 30 months had come true, though he abandoned his medium- term prediction for palm oil to reach 4,500 ringgit (US$1,327) a ton by Feb.

The narrowing in the premium may be accentuated by lower purchases of soybean oil from China and India as they begin harvesting soybeans in Oct, Ruchi's Shahra said in a phone interview Aug 28.

Imports of soybean oil by China, the world's biggest consumer of cooking oils, increased 10% to 1.47 m tonnes in the first 7 months of this year, while purchases of palm oil jumped 23% to 2.8 m tonnes, the Beijing-based customs office said Aug 15.

Purchases of palm oil by India, the 2nd-largest user, jumped 44% in the 9 months to Jul to 3.19 m tonnes from 2.22 m tonnes in the year ago period, according to the Solvent Extractors' Association of India. Imports of soybean oil slumped by more than half to 418,899 tons.

Soybean oil's premium may narrow from Dec as palm oil's stockpile-to-use ratio may be poised for a drop, Ben Santoso, an analyst at DBSVickers said. "We are already reaching the peak of the premium."

Soybean oil is historically more expensive than palm oil, because the vegetable oil extracted from crushing palm fruit is harder to store and turns cloudy in cooler temperatures, limiting its use in the winter months in the northern hemisphere.

Palm oil climbed 6.1%, the most in more than a week, to close at 2,620 ringgit a ton in Malaysia today, while soybean oil was at 54.55 US cents per pound, up 0.9% at 6:13 p.m. S'pore time.