KUALA LUMPUR, March 4 — Palm oil will climb in the next three months because of lower production and shrinking inventories before declining after July, according to Dorab Mistry, director at Godrej International Ltd.
Futures will rally to RM2,500 a metric tonne by May as reserves in Malaysia, the biggest grower after Indonesia, contract to the lowest in at least four years, Mistry said at a conference in Kuala Lumpur today. Prices may drop to RM2,100 by December as output recovers, he said.
Palm oil, used in everything from fuel to instant noodles and candy, lost 15 per cent in the past year as the collapse in crude oil costs cut the appeal of cooking oils as biofuel and as global supplies of soybeans used to make an alternative oil climbed to a record. In November, Mistry predicted that prices would reach RM2,500 by March as reserves declined.
“This is going to be a year of two halves,” said Mistry, who has traded cooking oils for more than three decades. “Demand will outstrip supply in the first six months and gradually supply will increase in the second half of the year. Until July, world vegetable oil stocks and particularly palm oil stocks will remain very tight,” he said in the address.
Palm oil gained as much as 0.9 per cent to RM2,400 a tonne on Bursa Malaysia Derivatives, the highest price since July, before trading 0.2 per cent lower at RM2,373 at 4.01pm in Kuala Lumpur. Most-active prices last traded above RM2,500 in June.
‘Lose tonnage’
Production in Malaysia entered a biological low cycle in November that will last until June, Mistry said. That coincides with a seasonal drop from December to March, he said. Malaysia lost 765,000 tonnes of output in the three months through January from a year earlier, and “we are going to continue to lose tonnage at least until June,” he said.
Inventories in Malaysia will keep dropping through June and will probably fall below 1.5 million tonnes, the lowest since February 2011, while reserves in Indonesia will bottom at about 2.5 million tonnes in July before rising to 4.65 million tonnes by December, Mistry said. Malaysian stockpiles were 1.77 million tonnes in January after contracting for a second month.
Output in Malaysia will be “at best” 19.7 million tonnes this year, and may even fall short of 19.5 million tonnes if current dry weather continues, Mistry said. That contrasts with the view of the country’s palm board, which predicts 20.09 million tonnes in 2015. Production in Indonesia will probably reach 31.5 million tonnes from 30 million tonnes, he said.
Global supply
Global output will rise by less than 2 million tonnes in the 12 months to September before climbing “strongly” by as much as 4 million tonnes in the following year, he estimated.
With a 44 per cent drop in Brent crude in the past year, discretionary biodiesel use has collapsed and world demand will shrink by about 500,000 tonnes, he said. Indonesia may at best consume half a million tonnes more this year, he said. The country more than doubled its biodiesel subsidy to 4,000 rupiah (RM1.12) from 1,500 rupiah in a bid to spur demand.
Mistry’s price forecasts assume Brent trades from US$50 to US$75 (RM182 to RM273) a barrel, a “relatively strong” dollar and reasonable world growth, he said. His target for RBD palm olein is US$725 as the ringgit may extend its decline, he said.
“I am happy to say that some relief to palm oil producers is just round the corner,” Mistry said. “Six months down the road, producers will once again face challenges and will need to focus on cost control and innovation.” — Bloomberg
