Palm oil prices must rise to around MYR3,000 ($955) a metric ton to curtail demand for exports, as bouts of bad weather have limited palm production growth in Indonesia and Malaysia, the world’s top palm oil producers, leading vegetable oils analyst Dorab Mistry said Thursday evening.
Global consumption of vegetable oils for food and biofuels will likely grow by 6 million tons during the year to March 2011, while growth in supply of those oils will likely be a dismal 2.3 million tons due to adverse weather around the world, Mistry said in a speech prepared for an industry conference in Belem, Brazil.
Consumption in India alone is projected to rise by 400,000 tons this year, raising the country's dependence on imports, as domestic supply hasn't been able to keep pace.
"Indian (vegetable oil) imports will need to expand from 8.6 million tons to 9 million tons. The world cannot supply that additional tonnage to India without dramatically reducing stocks. If we are to curtail Indian imports, prices of crude palm oil must rise further and trade around MYR3,000 tons," said Mistry, who's a director at Indian conglomerate Godrej International Ltd.
He reiterated his forecast for Malaysian crude palm oil output this year, saying that an El Nino-related dry spell late last year will likely cut production by 2.3% to around 17.2 million tons, as the two-month dry spell caused tree stress and lowered crop yields.
"CPO production during the Ramadan period (four weeks to early September) will be flat to lower, and recovery will have to wait until October," he said.
Indonesian CPO production will grow at a slower pace this year because expansion of plantation lands in the country has slowed, the London-based Mistry said. He revised his forecast for growth to 500,000 tons from 1 million tons for 2010.
Indonesia produced 20.6 million tons of CPO in 2009, according to the Indonesian Palm Oil Association.
"Overall for 2010, I am forecasting zero growth in world palm oil production," he said.
He also expects rival soyoil prices to rise sharply, from current levels around $910/ton to $1,050 a ton, so they will recover and then "maintain a healthy premium over palm oil."
Soyoil usually trades at a premium to CPO, but a record crop of soybeans from South America this year and a likely record harvest from the U.S. has pushed it into a narrow discount.
Production of biofuels could expand by 2 million tons annually as more countries turn to renewable energy in a bid to reduce their dependence on fossil fuels, he said.
Palm oil is one of the vegetable oils used to make biodiesel, but Mistry said, "Any vegetable oil going for biodiesel creates additional space for palm oil."
-By Shie-Lynn Lim, Dow Jones Newswires; +603 2026 1233; shie-lynn.lim@dowjones.com
(END) Dow Jones Newswires
August 26, 2010 09:00 ET (13:00 GMT)
Copyright (c) 2010 Dow Jones & Company, Inc.
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