Palm oil may tumble to as low as 2,800 ringgit ($880) a tonne in the next five to eight weeks, the lowest level in almost a year, as output jumps in Malaysia and Indonesia, the largest growers, according to Dorab Mistry, director of Godrej International Ltd.
Futures in Malaysia will trade between 2,800 ringgit and 3,100 ringgit a tonne until mid-November, Mistry said in remarks prepared for the Globoil conference in Mumbai on Monday. The commodity, which has lost 21 per cent this year, last traded at less than 2,800 ringgit in October 2010.
Lower palm oil prices may curb world food prices, that the United Nations predicts will stay at historically high levels this year and ease pressure on central banks to raise interest rates. Commodities fell to a nine-month low on September 23 on deepening concern that governments are running out of tools to avert a global recession, eroding demand for raw-materials.
“This is going to be a period of great volatility, first down and then gradually up,” said Mistry, who’s traded the oil used in food and fuels for more than three decades. “You will need strong nerves to trade these markets.” Futures may recover from December and rally to as high as 4,000 ringgit a tonne as consumption rises among developing nations, including China and India, he said, maintaining a forecast made first on July 28. The December-delivery contract closed at 2,992 ringgit in Kuala Lumpur on September 23.
PEAK PRODUCTION
Palm oil production in Malaysia will be at a peak this month and in October, Mistry said. Output may gain to 19 million tons (mt) this year in Malaysia, while it may total 25.5 mt in Indonesia, the largest producer, sticking to a forecasts made in July. In Malaysia, production totalled 12 mt in the January-August period, while shipments gained 3.8 per cent to 11.3 mt, according to the nation’s palm oil board.
Sime Darby Bhd, the world’s biggest publicly listed palm oil producer, expects harvests from plantations in Malaysia and Indonesia to climb, Group Chief Executive Officer Mohd Bakke Salleh said on September 21. Futures may hold at 3,000 ringgit a tonne until the end of the year, he said.
because of their “significant discount” to other cooking oils and demand from India ahead of the Diwali festival, he said.
The price may plunge 16 per cent to as low as 2,525 ringgit a ton by March, if Brent crude oil extends its decline to $87 a barrel, James Fry, chairman of LMC International Ltd told the conference yesterday. Brent for November delivery fell 1.4 per cent to $103.97 a barrel on the London-based ICE Futures Europe exchange on September 23.
‘DEPRESS’
A plan by Indonesia to lower the tax on refined palm oil products may boost its exports, swelling inventory in Malaysia, Fry said. That may “depress” prices, he said. Indonesia will levy a maximum tax of 10 per cent on refined, bleached and deodorized palm oil from October 1, while crude palm oil will be taxed at a maximum of 22.5 per cent, according to a Finance Ministry Decree signed August 15.
The growth in global vegetable oil supplies will outpace the increase in demand for the first time in three years in 2011, Mistry said. Production will expand by 9 mt, exceeding the 6.5 mt growth in demand, he said.
“It is also seen that world stocks will rise significantly,” Mistry said. “This rise in stocks will materialise mainly in the second half of the year. That is when palm oil production will be at its highest and Russian and Ukrainian sunflower seed crush will be strong.”
FLAT OUTPUT
Palm oil output in Malaysia may remain flat next year or increase marginally after a bumper harvest this year, while production growth in Indonesia will be less than a normal year, Mistry said.
Soybean oil will remain “steady” around $1,200 and $1,250 a ton free-on-board basis for the next several months due to biodiesel mandates in Brazil and Argentina, Mistry said. Still, the loss of export demand for soybean oil from so-called price- sensitive countries will continue given its large premium over palm oil, he said.
Soybean oil futures in Chicago may rally from December as Brazil and Argentina near the end of their crushing season, Mistry said. Prices may gain to 65 cents a pound to 70 cents a pound by April from 52.64 cents on September 23, he said.
“There will be several short periods between now and the middle of 2012 when markets will be extremely volatile,” Mistry said. “So much so that we shall even try to forget the fundamentals and look only at the performance of financial markets and equities.”
