Palm oil declines on valuation cues

Palm oil futures in Malaysia, the global benchmark, reversed earlier gains to fall for the first time in three days amid concern recent price gains erode its competitive value.

Palm oil for November delivery on the Malaysia Derivatives Exchange fell 15 ringgit, or 0.6 per cent, to 2,459 ringgit ($701) a tonne. The contract gained 4 per cent in the previous two days, and rose as much as 1.1 per cent earlier today. Palm oil traded in Rotterdam shot to a one-month high of $842.50 a tonne yesterday.

"A price above $800 is quite high," Harry Nadir, finance director of PT Bakrie Sumatera Plantations, the smallest of the listed oil palm growers in Indonesia, said by phone.

Palm oil has averaged 51 per cent higher since the year started, compared with the same period last year. That compares with the 37 per cent gain in soybean oil futures, its main rival oil. The two oils are the world's most consumed vegetable oils.

The gains have prompted the Indonesian government to raise the export tax on palm oil to secure domestic supply and ensure social stability ahead of the holy month of Ramadan, which starts in two weeks.

Any gain "is temporary", Christine Salim, an analyst at PT Samuel Asset Management in Jakarta, said of the earlier gains. "Production picks up in the fourth quarter and things get back to normal."

There are short-term supply concerns as demand tends to picks up for the Muslim holy month of Ramadan, which starts in mid-September this year.

Muslims fast between dawn and sunset during Ramadan, with communal meals during non-fasting hours. Palm oil, used mainly in cooking, has been trading at a backwardation, where the future price is less expensive than the price for imminent delivery, often signaling near-term supply shortages.