Brief relief for palm oil prices on swelling stocks

By Lindsey Partos

- Last updated on GMT

Related tags Palm oil

Swelling domestic stocks for Malaysian palm oil, widely used by
bakers, left crude palm oil futures closing lower on Monday,
offering a slight relief for prices.

According to Malaysian paper The News, the benchmark September contract on the Bursa Malaysia Derivatives Exchange fell 25 ringgit to close at 3,598 ringgit (€699) a tonne.

Prices for all vegetable oils, including palm oil, have soared in recent months, with many figures doubling or tripling due to squeezed supplies, rocketing energy costs and competition for the raw material from non-food industries, notably for biofuels.

Figures from the World Bank earlier this month stated that palm oil prices had risen 2.9 per cent from May to June, due to reduced output in Malaysia and strong demand in India.

Prices for palm oil have risen by almost a third since October 2007, although have levelled off slightly in the past three months.

In March this year the commodity traded at $1,249 a tonne, moving to $1,174 a tonne in April, and $1,208 a tonne in May.

But these figures have tripled from annual averages in 2006, that saw palm oil pulling in prices of a far inferior $478 a tonne.

Palm oil, used in a diverse range of food formulations to include bread and crisps, is enjoying strong appeal from food makers as they turn away from trans fats.

The food industry is striding ahead with new formulations that slice artery-clogging trans fats, increasingly unpopular with consumers, from their products and carving out fresh demand for the trans-fat free, and already popular, palm oil, made from the fruit of the palm tree.

In addition, attracting increasing attention for use as a biofuel, the food industry is today faced with competition for palm oil, in turn putting constant upward pressure on prices.

Although holding a green biofuel appeal, a slice of environmental campaigners argue that rising demand for this popular oil, the primary exporter for which is Indonesia, is leading to deforestation, which destroys habitats for animals such as the orang-utan, as well as contributing to the rise in carbon emissions.

Such is the pace of the issue, last month Anglo-Dutch food giant Unilever pledged to use only palm oil certified as sustainable by 2015, in addition to supporting calls for a moratorium on further deforestation for palm oil in Indonesia.

In ensuring Unilever's supplies come from sustainable sources, the firm said it hopes to take a leading role in establishing a certified supply chain for palm oil production.

"Suppliers need to move to meet the criteria, by getting certified both the palm oil from their own plantations and the palm oil they buy from elsewhere," said Patrick Cescau, Unilever CEO.

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