Malaysian CPO futures on 2 Sep '08

Malaysian CPO futures dropped as crude oil plunged, reducing demand for alternative fuel made from vegetable oils, including the tropical commodity. Palm oil for Nov delivery slumped 5.2% to 2,484 ringgit (US$725) per tonne on BMD, the most since Aug 26. Earlier, the futures fell as low as 2,434 ringgit, extending a 14% decline in Aug, the second straight monthly drop.

Crude oil drove the palm oil market down "and it's really a function partly of the dollar's strength that is driving oil prices and commodities lower," said James Gruber, an analyst at CLSA Asia Pacific Markets in Jakarta. "Secondly, there's demand concern due to weakening economic growth globally."

Palm oil may fall to less than 2,425 ringgit (US$709) a tonne if crude falls below US$100 a barrel, Malaysian Plantation Industries and Commodities Minister Peter Chin Fah Kui said.

If "petroleum is going to come down further, there will be a chance that palm oil will also follow because the graph tracks each other," Chin told reporters today in Kuala Lumpur. Still, the current range of 2,500 ringgit to 3,000 ringgit would be "comfortable" for growers, he said, echoing recent comments.

"In the near term, palm oil will continue to track crude oil prices," said James Ratnam, an analyst at TA Securities Holdings Bhd. in Kuala Lumpur. Chin's forecast "makes sense," he said.

The decline in palm oil prices may prompt the government to review a special tax on domestic producers such as IOI Corp. and Sime Darby Bhd. as the band in which the levy is payable has narrowed, hurting collection, Chin said.

Planters, who pay the tax when they sell palm oil at more than 2,000 ringgit a tonne, want the threshold raised because their production costs have risen. The tax is charged based on the difference between the current price and the 2,000 ringgit level.

Malaysia Aug palm Oil exports up despite defaults. Exports rose 8% in Aug, compared with the previous month, according to independent surveyor Intertek. A total of 1.49 m tonnes of palm oil exports were tracked in Aug, Intertek said. Another cargo surveyor SGS (Malaysia) Bhd. said Malaysia's palm oil exports rose 6.6% on month in Aug to 1.49 m tonnes.