Crude palm oil prices could fall below MYR2,500 a metric ton if the benchmark ICE Brent crude oil contract drops to $70 a barrel, industry analyst James Fry said Wednesday.
This may mean a 5%-6% decline from current Brent oil prices if governments around the world raise interest rates and cut back on spending, leading to a 25% fall in Brent prices within six months, said Fry, who's chairman of LMC International Ltd.
On the other hand, the downside for palm oil prices is limited, as it's used as a substitute in the food sector and could fill the void as a result of more soyoil and rapeseed oil being channeled into the biofuel sector. Because of biofuels, Fry usually links Brent crude with palm oil in analyzing palm oil's price movements.
"Palm oil stocks may decline until July and may give seasonal support to prices," Fry said.
Palm oil inventories have declined for the second consecutive month, falling 11% to 1.79 million tons in February, according to data released Wednesday from the government-linked Malaysian Palm Oil Board.
Stocks were at 2.0 million tons in January.
Fry also said if Brent trades lower to around $76-$79 a barrel, palm oil prices are likely to move between MYR2,600-MYR2,700 in the next few months.
"The arrival of biofuels has reduced the role of palm oil stocks on CPO prices. Since early 2008, they have determined only the premium palm oil prices has over petroleum prices," he said.
-By Shie-Lynn Lim of Dow Jones Newswires; +603 2026 1233; shie-lynn.lim@dowjones.com
(MORE TO FOLLOW) Dow Jones Newswires
March 10, 2010 05:56 ET (10:56 GMT)
Copyright (c) 2010 Dow Jones & Company, Inc.
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