Not so bright price outlook at POC 2009

Ah... It is Friday the 13th today.

People say this date spells bad luck but I already felt the doom and gloom in last few days.

It was not a very happy POC 2009.

Even the lighting at the event reflected the bleak sentiment of "Challenges of Change" when Bursa Malaysia's chief executive Dato' Yusli Mohamed Yusoff delivered his welcome speech.

Celebrity-status palm oil analysts Thomas Mielke, Dorab Mistry and Dr James Fry, yesterday, forecast prices to fall as low as RM1,500 per tonne in the second half of the year.

Their solemn facial expression was a big contrast to last year's broad smiles when vegetable oil prices rallied to historical highs then.

Fry was the first to struck a sobering chord in the hearts of some 1,000 vegetable oil traders at the Palm and Lauric Oils Conference & Exhibition Price Outlook 2009 conference yesterday.

After reminding traders that the global economy in the midst of a recession, he concluded he was bearish on palm oil prices. He anticipated palm oil prices could fall back to RM1,500 per tonne.

As Fry left the stage, Mielke suddenly appeared in digital format on the broad screen like a scene off Star Trek, minus the background music.

Mielke, who is a regular for the past 20 years, took pains to highlight he was absent at only two occasions and this was the third. "I've been a regular participant and speaker at the POC series in Kuala Lumpur right from the begining. I'm extremely sorry I cannot attend personally this time as I already accepted to speak at NIOP in Tucson and Canadian Canola Conference in Toronto," he said.

"I was only invited by the organiser of the POC series, four months ago. It is, indeed, very unfortunate that such international conferences are not co-ordinated," he added.

Mielke immediately lifted the mood in the hall when he said consumers around the world are getting more dependent on palm oil due to insufficient production of other oils and fats. As farmers find it difficult to secure credit facilities from the banks and experience profit margin squeeze, they cut back on new plantings and reduced fertiliser application. Therefore, palm oil prices have additional upward potential by US$70 to US$100 per tonne until June.

This cheerful news, however, only lasted three seconds. He went on to say there are many risks and uncertainties ahead. He reminded traders there will be increase of two to three million acres in the US soybean plantings this spring and the bumper harvest of soybean crop is likely to have an impact on soybean (and crude palm oil) prices from July onwards.

By the time Mistry got up the stage, many traders were already restless and folding their arms tightly across the chest.

True to his charismatic ways he struck the right chord with fellow traders when he revealed the unspoken rule.

If a fellow trader were to call out, "Hey! brother ..." it is best to make
allowance of RM400 per tonne and if he regards you, "My dear friend ...", you
could set a buffer of RM200 per tonne and finally if he only sees you as "just a
friend...", he is as reliable as a difference of RM100 per tonne.

This got the hallful of traders roaring with laughter. It is especially relevant now because many palm oil exporters from Malaysia and Indonesia are still trying to reconcile defaulted contracts with 'guilty' clients.

Standing tall before 'more honourable' traders in the hall, Mistry noted that incidentally, their 'guilty' friends were absent. Perhaps they have refrained from participating in the POC 2009 for fear of embarassing encounters.

Having set the right camaderie, Mistry noted the company he trades for, India-based Godrej Group, has never defaulted. He had always honoured contracts with clients in Malaysia and Indonesia. "And I'm telling you this as a friend, not a brother ..," he said. This was met with more cheering and clapping.

Moving on to price outlook, Mistry gave pointers of bouyant prices in the immediate weeks. As the crowd warmed up to this news, he let out a bombshell that the medium term prospects is bleak.

"Palm oil stocks for the next few months will tighten as the trees take a rest. Prices could briefly challenge the RM2,100 per tonne level in the immediate weeks. Prices, however, will then fall as low as RM1,500 per tonne in the second half of the year when we see good uptick in palm oil production. Beyond May, palm will become uncompetitive against Latin America's soya oil and will lose market share," he said.

Bursa Malaysia was right to save the best for the last.

Though a vegetable oil trader by profession, Mistry was in his element when he displayed excellent oratory skills, delivery of dry humour and clever play of words.

The conference ended on a light note despite the not so bright price outlook.

Kuala Lumpur POC series has come of age

WHEN Malaysia first started the annual palm oil conference 20 years ago, the government had to pay for the hotel charges of most participants to start the ball rolling.

Today, the Palm and Lauric Oils Conference & Exhibition Price Outlook (POC 2009) can afford to charge people to attend and they still come despite a global downturn and higher fees.

Malaysia, which is the world's biggest palm oil exporter and home to the world's largest market for palm oil derivatives, has been able to lead the industry with the POC series.

Executives from major companies, traders and even foreign government officials converge in Kuala Lumpur to gain an update on industry issues like where the price is heading and latest trends.

They can also get a sense of where the new markets are for palm oil by just being at POC 2009. There are more participants from Eastern Europe, Russia, Africa and the Middle East. In fact, Bursa Malaysia provided Russian delegates real-time translation services this year, allowing them more active participation in the events.

The palm oil industry has had a rough ride last year. From a high of RM4,486 per tonne in March 2008, crude palm oil prices tumbled to a low of RM1,390 in October. The record high price prompted Malaysia to slap a windfall tax on CPO, which is still in place now, while the dizzying plunge resulted in buyers cancelling orders.

Many palm oil exporters in Malaysia and Indonesia suffered hundreds of million US dollars in losses.

This dark side of the industry was also evident by the less crowded POC 2009. A mid-sized plantation company official told Business Times that his "guilty" clients were absent this year.

Popular speaker at the POC series, analyst Dorab Mistry, hit the nail on the head when he applauded the courage of a small band of Indonesian palm oil companies that stood up against defaulters and blacklisted those who did not honour contracts.

"Sadly, many of the culprits turned out to be my fellow Indians and worst of all were Indian government-linked companies. Their behaviour was nothing short of scandalous. It will do India's image as a great trading nation a tonne of good if these public sector companies were made to honour their obligations.

"The Indian government could start by meeting with affected palm oil companies in Malaysia and Indonesia and hear from the horses' mouth the extent of the admitted and unadmitted defaults," he said.

Mistry then vowed to continue speaking of such despicable acts by such "black sheeps" until the wrongs are made right.

The crowd before him, surprised by his daring "confession" on behalf of his fellow countrymen, broke out into a thunderous applause.

At the end of the day, brokers and traders agreed that the POC series in its 20th edition is starting to mature and reflect the global lead that Malaysia takes in the industry.

Meanwhile, at the event, Kenanga Deutsche Futures Sdn Bhd was duly recognised the best overall performer for six consecutive years in attracting the biggest trades into Bursa Malaysia Derivatives Exchange.

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