Crude palm oil should recover to as much as $700 a metric ton this year on increased demand, according to Achmad Manggabarani, the head of plantations policy in Indonesia, the world’s largest producer.
“We are moving toward the equilibrium price” where supply balances demand at $600 to $700 a ton, Manggabarani, plantations director general at the Agriculture Ministry, said in an interview. The forecast compares with 1,800 ringgit ($499) a metric ton in Malaysia today and $560 in Rotterdam on Jan. 27.
Palm oil futures collapsed last year after surging to a record amid concern that demand for the food and fuel additive would drop during the global recession. Goldman Sachs Group Inc. called the bottom of the market in November, saying demand was “relatively resilient” even during recessions.
“The surge in price last year was abnormal, then the plunge is in line with other commodities on the global economic outlook and as speculators leave markets,” Manggabarani said yesterday from his office in Jakarta.
Palm oil on the Malaysia Derivatives Exchange, the global benchmark, touched an all-time high of 4,486 ringgit a ton on March 4. The contract then reached a bottom of 1,331 ringgit on Oct. 28, a three-year low, after slumping about 70 percent.
The current price in Rotterdam should entice farmers to harvest palm fruits as it’s higher than both the local cost of production and the average price in 2006, Manggabarani said. Palm oil averaged $475 a ton in 2006 in Rotterdam.
Fuel Regulation
A drive by Indonesia, Southeast Asia’s biggest economy, to boost local use of palm oil will help to sustain demand and prices in the longer term, he said. Indonesia issued a regulation last year that requires fuels used by vehicles in the country to contain mixes derived from plants.
The rebound in price would come even as Indonesian output increased, Manggabarani said, forecasting a record harvest of 19.4 million tons this year up from 18.7 million tons in 2008.
The Indonesian Palm Oil Association said 2009 output may total 20 million tons, according to a Jan. 21 forecast. Exports may total 14.5 million tons from 12.5 million tons in 2008.
Malaysia, the second-largest palm oil producer, will probably produce a record 18 million tons in 2009, 2.9 percent more than 2008, according to a Nov. 7 forecast from Minister of Plantation Industries and Commodities Peter Chin.
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