Global economy, supply to weigh further on palm oil, says analyst
KUALA LUMPUR, Sept 23 — Palm oil prices could drop to RM2,600 -2,700 a tonne till the end of this year as weaker global economic growth crimps demand at a time when supply rises at a faster rate, an industry analyst said.
The forecast by Dorab Mistry, head of edible oil trading with Indian conglomerate Godrej Industries, represents up to a near 6 per cent drop from current prices as more demand has not kicked in despite palm oil’s discount to rival soy oil.
“Demand for palm oil in particular and for vegetable oils in general has been softer than expected in 2012,” Mistry said, according to a transcript of a speech to be delivered today at a regional industry conference in the Indian port city of Mumbai.
“(This is due to) much slower growth in the production of bio fuels from vegetable oil and the difficult economic situation in developing countries, coupled with high prices,” he added.
Also, with Indonesia adjusting its export taxes to favour the shipment of refined palm oil cargoes and grabbing market share from Malaysia, Mistry said there was a 50 per cent chance futures would drop to RM2,300 in the last quarter of 2012.
Malaysia, the world’s second-largest producer of palm oil after Indonesia, has been pushing shipments under a tax-free crude palm oil export scheme to top edible oil buyer India in a bid to reduce swelling stocks and retain business.
“This is the best destination for these palm oil shipments and therefore stocks in India as at the end of October as well as pipelines will be higher than previous years,” Mistry said.
But coupled with new harvests of oilseeds in India, Malaysia will export less with stocks continuing to grow in the last quarter of 2012.
Mistry said it would not be surprising if Malaysia’s palm oil stocks rose to three million tonnes at the start of next year. September opening inventory levels hover around 2.1 million tonnes, according to government data.
Surging stocks in Malaysia come as Indonesia’s inventories had been growing since 2010 to 3.5-4 million tonnes a month, in part due to rising production and infrastructure bottlenecks, Mistry said.
A high production cycle for palm oil in Southeast Asia that started in June was boosting supply, he said, although it might last till mid-December as mild El Nino weather condition could cut the season short.
El Nino tends to bring drier weather to the region, leading to oil palms producing more male flowers that do not produce the edible oil.
“We need to watch rainfall in September, October and November,” Mistry said. “If, as some weathermen expect, we have heavy rain in November, the high (production) cycle may be further extended.”
The London-based analyst adjusted his forecast for Malaysian crude palm oil production this year to 18 million tonnes from 18.2 million tonnes. Malaysia’s government forecasts peg output at 18.4 million tonnes, down 2.6 per cent from last year.
Indonesian production is likely to overshoot, with Mistry revising forecasts to 27.5 million tonnes from 27 million tonnes. In contrast, the Agriculture Ministry saw production at 25.7 million tonnes. — Reuters