Biofuels and banquets put pressure on stocks of palm oil

The crisis has prompted palm oil rationing in a country that is one of the world’s largest producers of the commodity and the rush to buy it coincides with growing fears of cooking oil shortages before the banquets and general rise in the consumption of fried food over Chinese new year.

Inventories are already low: the ethnic diversity of Malaysia means that Christmas, the Islamic festival of Eid al-Fitr and the Hindu celebration of Diwali are all marked with equal vigour, with festivities centered chiefly on eating. Refineries and palm oil producers in Malaysia have been ordered to step up monthly output of sub-sidised oil to 70,000 tonnes in a near30 per cent increase.

The run began on Monday as traders in Kuala Lumpur pushed the price of palm oil to a record 3,166 ring-git (£489) a tonne. Although there was a modest bout of profit-taking, which led to a fall yesterday, few analysts believe that the commodity is nearing its peak.

Palm oil has been the beneficiary of a combination of seismic shifts in global commodity markets. Because of its increasing appeal as a cheap source of ethanol for biofuel, the price of what was once purely a foodstuff now echoes the global price of crude oil. More extreme weather, including flooding in several of Malaysia’s key regions for growing the crop, has also taken a toll on price stability.

The behaviour of farmers around the world has also had an impact, with the biofuel shift causing corn prices to soar, prompting growers in the United States and elsewhere to plant less soya.

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