Palm oil prices hit 3-year lows Prices of palm oil have fallen to three-year lows this week amid concerns over unseasonably large build-up in inventories in Malaysia, the world's second-largest producer, and fears over weakening demand from China. The sharp falls compound an already depressed picture for palm oil prices, which have fallen about 40 per cent since this year's high in April. A widely watched industry report out this week showed that Malaysian palm oil exports in September were flat compared with the previous month, and down 5 per cent compared with a year earlier. Concern is rising because September is the start of a three-month period when production of palm oil ramps up at plantations across Malaysia and Indonesia. The two countries account for 85 per cent of the world's palm oil production. Palm oil is a key ingredient in processed food and accounts for about 32 per cent of all vegetable oil consumption, according to Rabobank. Traders were surprised by sudden evidence of larger-than-expected inventories which, at a time of increased production, sent prices into a tailspin. All the plantation operators are completely perplexed about the price fall. No one can explain it adequately," said one industry expert in Kuala Lumpur who declined to be named. Ivy Ng, analyst at CIMB, a Malaysian bank, said: "The sharp decline could be due partly to the weaker palm export data for September and concerns over strong supply." Nomura said last week that weakness in palm oil prices could be because of possible stockpiling by China of alternative vegetable oils such as soyabean, noting that the country's imports of palm oil were lower compared with a year earlier. Tan Ming Tan, head of research at Credit Suisse in Malaysia, said this week's price falls could also be due to a better than expected soyabean crop in the US, despite a recent catastrophic drought. "As we are entering palm's high production period, there is a high possibility that Malaysian palm inventories could hit a record high of 2.4m-2.5m tonnes," she wrote. Palm oil futures for settlement in October on Bursa Malaysia had recovered slightly on Wednesday to trade at M$2,125, compared with the previous close of M$2,083. Futures for December settlement were also higher, at M$2,322, compared with M$2,225. Shares in the biggest producers of palm oil still fell sharply on the uncertainty. Singapore-listed Golden Agri-Resources stock was down by 3 per cent to S$0.64, while those of rival Wilmar - the world's largest palm oil processor - fell by 1.8 per cent to S$3.14. Shares in Felda, Malaysia's second largest palm oil producer after Sime Darby, made their biggest fall since they started trading in June on Bursa Malaysia, in what was one of the world's biggest initial public offerings this year. They were down 1.6 per cent at M$4.79 - just shy of their M$4.55 offer price for retail investors. The IPO came with strong political backing from Malaysian prime minister Najib Razak, whose ruling coalition will depend heavily on rural votes in Malaysia's vast plantations for support at an election that must be called by April.