Palm oil climbed after Godrej International's Dorab Mistry said soybean oil's premium to the tropical oil may halve, spurring buying from investors looking for a bounce in prices.
Soybean oil's premium to palm oil, the widest in more than 6 years, may narrow as output of palm oil peaks in Indonesia and Malaysia and a price plunge lures buyers, said Mistry, who has traded vegetable oils for more than three decades.
Soybean oil was around 56% more expensive than the tropical oil. The gap widened to 69% on Aug 26, the most since at least Jan '02, according to data compiled by Bloomberg.
"Demand for palm oil is bound to emerge as it is a lot cheaper," Alvin Tai, analyst at OSK Research Bhd. said by phone from Kuala Lumpur. "One can make money using palm oil to make bio-fuel until palm is available at 2,900 ringgit.''
Palm oil has declined 14% this year, while soybean oil has gained almost 10% after supply from Argentina, the world's largest exporter, was curbed during a 4-month strike by farmers over the Mar increase in export taxes.
That's made crude palm oil US$470 a tonne cheaper than soybean oil, Sunaina Dhanuka, analyst at Macquarie Securities, said in a report. The gap relative to both soybean and rapeseed oils is at an "all-time high," she said. Still, prices may not exceed US$1,000 a ton in the medium term due because of a favourable supply outlook, she said.
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