Palm oil prices may rise 6% on climate change

Palm oil prices are likely to rise six per cent soon on expectations of unfavourable climatic conditions in Malaysia and Indonesia, the two largest suppliers, said Dorab Mistry, director of Godrej International.

In a presentation at Kuala Lumpur organised by the stock exchange there, he said: “Production is underperforming and stocks are tight. A lot of the biodiesel business has been locked in. The job of the market till June is to push demand away from palm oil. The oil does not need to buy demand by price discounts. Therefore, crude palm oil (CPO) futures on the Bursa Malaysia (exchange) need to quickly scale, to control demand and enable stocks in Malaysia and in Indonesia to be maintained at a workable level.”

Prices should not rise beyond 3,000 ringgit a tonne unless climatic conditions change for the worse. Even if the weather improves and rains come by next week, it will not alter the price outlook up to June; demand rationing is needed. However, if the rains are normal and the high cycle begins from July, prices can trade in a range between 2,900 and 2,600 ringgit a tonne from July till October. In the event of an El Niño (bad weather) development, CPO futures will cling to 3,000 ringgit beyond June, he added. Production is likely to be affected from late 2014 and we might have 3,500 ringgit a tonne.

Meanwhile, Indonesia is expected to find it difficult to implement its biodiesel mandate. Biodiesel producers which have committed large volumes at the current formula-based pricing might find themselves in a difficult situation. For India, vegetable oil consumption and imports are likely to set a new record this year. While  consumption is likely to be 18.4 million tonnes during this oil year (November 2013- October 2014) as against 17.7 mt in the previous one, imports could be at a new high of 11 mt this year, against 10.7 mt last year.