Crude palm oil tipped for 20pc price rise
John Aglionby | Friday, 6 June 2008
FT Syndication Service
JAKARTA: Crude palm oil prices should rise 10 per cent by the end of this month and more than 20 per cent by next February on the back of strong demand, tightening supply and buoyant crude oil prices, one of the industry's leading analysts predicted.
Dorab Mistry, director of Godrej International, a London-based trading company, warned that prices were unlikely to remain high for long after that and could tumble rapidly if crude oil prices collapsed or the weather proved better than expected.
Vegetable oil prices began tracking crude oil prices in 2007 after years of moving in the opposite direction.
Mr Mistry forecast that the benchmark palm oil futures on Malaysia's derivatives exchange could hit M$4,000 ($1,245) by the end of June and M$4,500 by February. He was speaking late last month at an industry conference in Indonesia, the world's largest palm oil producer.
Futures prices peaked at M$4,491 on March 4 this year and then plummeted to about M$3,100 before rallying on increased export taxes in Indonesia, as well as higher Chinese and Indian demand. Palm oil futures in Malaysia closed at a 10-week high late last month, up 0.5 per cent to M$3,673.
Chinese and Indian imports so far this year are up 26 per cent and 17 per cent respectively on the same period in 2007, Mr Mistry said.
Supply is likely to slow in September and production from October 2008 to September 2009 is likely to exceed demand by less than 10 per cent. Indonesia, the only country where significant land for expansion is available, is expecting to increase oil palm estates by 600,000 hectares a year over the next seven years.
Mr Mistry predicted soyabean futures on the Chicago Board of Trade would rise to $16 a bushel - and $18 in the event of bad weather - between September and February. They ended late last month down 0.8 per cent at $13.68. He said the bearish sentiment that hit prices after the US government announced a large increase in soya planting this year had largely passed.
Soya oil could rise to $1,600 a tonne in the same period, or $1,800 in the event of bad weather, from its current price of $1,350. James Fry, a vegetable oils economist at LMC International in Britain, predicted at the same conference that palm oil prices were likely to rise in the short term but only to about M$3,800.
Mr Fry said further gains would be capped by crude oil prices starting to fall.
He also forecast that robust biofuel demand, particularly in Europe, would support palm oil prices.
"There's pressure on governments to reduce incentives on biofuels," he said. "But I see biofuels policy as being like ocean tankers. You may want to turn them round, but it takes very long for the ship to actually change direction."
JAKARTA: Crude palm oil prices should rise 10 per cent by the end of this month and more than 20 per cent by next February on the back of strong demand, tightening supply and buoyant crude oil prices, one of the industry's leading analysts predicted.
Dorab Mistry, director of Godrej International, a London-based trading company, warned that prices were unlikely to remain high for long after that and could tumble rapidly if crude oil prices collapsed or the weather proved better than expected.
Vegetable oil prices began tracking crude oil prices in 2007 after years of moving in the opposite direction.
Mr Mistry forecast that the benchmark palm oil futures on Malaysia's derivatives exchange could hit M$4,000 ($1,245) by the end of June and M$4,500 by February. He was speaking late last month at an industry conference in Indonesia, the world's largest palm oil producer.
Futures prices peaked at M$4,491 on March 4 this year and then plummeted to about M$3,100 before rallying on increased export taxes in Indonesia, as well as higher Chinese and Indian demand. Palm oil futures in Malaysia closed at a 10-week high late last month, up 0.5 per cent to M$3,673.
Chinese and Indian imports so far this year are up 26 per cent and 17 per cent respectively on the same period in 2007, Mr Mistry said.
Supply is likely to slow in September and production from October 2008 to September 2009 is likely to exceed demand by less than 10 per cent. Indonesia, the only country where significant land for expansion is available, is expecting to increase oil palm estates by 600,000 hectares a year over the next seven years.
Mr Mistry predicted soyabean futures on the Chicago Board of Trade would rise to $16 a bushel - and $18 in the event of bad weather - between September and February. They ended late last month down 0.8 per cent at $13.68. He said the bearish sentiment that hit prices after the US government announced a large increase in soya planting this year had largely passed.
Soya oil could rise to $1,600 a tonne in the same period, or $1,800 in the event of bad weather, from its current price of $1,350. James Fry, a vegetable oils economist at LMC International in Britain, predicted at the same conference that palm oil prices were likely to rise in the short term but only to about M$3,800.
Mr Fry said further gains would be capped by crude oil prices starting to fall.
He also forecast that robust biofuel demand, particularly in Europe, would support palm oil prices.
"There's pressure on governments to reduce incentives on biofuels," he said. "But I see biofuels policy as being like ocean tankers. You may want to turn them round, but it takes very long for the ship to actually change direction."