KUALA LUMPUR, Nov 4: Malaysian crude palm oil futures tumbled as much as 5.5 per cent on Tuesday as weaker crude oil revived fears of a global economic recession, which would sap demand and swell already burgeoning stockpiles.

Prices of the tropical oil have slumped nearly two-thirds from a March peak of 4,486 ringgit as big buyers China and India slow purchases in a year-long high production cycle.

The benchmark January contract fell 91 ringgit to an intra-session low of 1,575 ringgit ($445) per ton, slipping off a near two-week high hit the previous day. By midday, the contract was trading down 71 ringgit.

Edible oil prices and particularly crude palm oil prices have come under pressure due to not only falling prices of crude mineral oil, but also rising inventories in Malaysia and Indonesia,” Macquarie Research said in a recent note.

Given that September-November is usually the peak production period for palm oil and that demand for palm oil is lower during the winter months, it is likely that palm oil stocks will rise during the last quarter of 2008. For a separate story on Macquarie Research’s forecast on prices of the tropical oil and the impact on palm planters’ and traders’ earnings for 2009.

Other traded months on Bursa Malaysia stood between 61 and 79 ringgit. Overall volume was 5,170 lots at 25 tons each.

Oil was little changed on Tuesday after falling nearly 6 per cent the previous session on renewed fears of economic recession, as investors were unwilling to place big bets before the US presidential election later in the day.

US soyaoil for December delivery fell 1.1 per cent while the most-active January 2009 soyaoil contract on the Dalian Commodity Exchange edged 0.8 per cent lower.

Prices of most of these vegetable oils move in tandem with crude oil due to their growing use in biofuels, but traders say demand from that sector is likely to slow, along with overall transport fuel demand as the global economy slows.

Prospects for palm biodiesel this year remain muted as the European winter makes the fuel freeze, Aseambankers said in a research note, but noted that recent government mandates for use of the fuel in the domestic market might support prices.

If (mandates are) executed well, this is likely to be medium-term positive in ensuring prices stay at decent levels, given the influx of incoming supplies in the coming years emanating from Indonesia, Aseambankers analyst Ong Chee Ting said.

Malaysia said last week it would blend 5 per cent of palm biodiesel with local diesel, initially to be used in government vehicles, followed by industrial and transport use.

Indonesia, the world’s top palm producer, issued in September a mandatory biofuel decree for the following year.

In Malaysia’s physical market, crude palm oil for November shipment in the southern region was 1,600/1,620 ringgit.—Reuters