Mixed views on palm oil prices

This is written by my colleague Zaidi Isham Ismail.

Palm oil industry experts have given conflicting views on where the commodity's price is headed for this year, due to volatile petroleum prices.

Some said the crude palm oil (CPO) prices may have reached its peak but others think prices could climb higher if the political unrest in North Africa and the Middle East worsens.

In what looked like a repeat of 2008, CPO and crude oil prices are hitting records so far this year. Worries about a supply shortage following troubles in Libya, which supplies 2 per cent of global oil needs, have pushed up crude oil prices. Brent crude is trading at around US$113 (RM342) a barrel currently.

High crude prices mean more demand for biofuel, and this, in turn, means better demand for CPO. On top of this, there is already strong demand for CPO in emerging markets like China and India as their big population consumes more food.

At the industry's leading global conference yesterday, London-based Godrej International director Dorab Mistry said CPO prices, now trading around RM3,500 a tonne, can hit RM4,000 this year due to the political instability in the Middle East.

"Biodiesel demand is expected to rise by at least 2.5 million tonnes this year due to the geopolitical uncertainty in Middle East and North Africa.

"If the strife and demonstrations continue for a period of months, energy prices will remain high and expand the demand for biodiesel," he said at the Palm and Lauric Oils Conference and Exhibition 2011 (POC 2011) in Kuala Lumpur yesterday.

Given the high energy prices, tight palm oil stocks and increasing demand, the CPO price is due to reach a new high in the next eight to 10 weeks. "It is conceivable that CPO prices may test RM4,000 in the next few weeks," he said. He reckons prices will not fall below RM3,000 a tonne this year unless there is a general financial meltdown and a market collapse.

But Hamburg-based ISTA Mielke GmBH executive director Thomas Mielke is not so optimistic as he thinks the crude oil market is too volatile. "CPO price of US$1,250 (RM3.787) a tonne is not sustainable due to the high volatility. But it will not go below the level seen in 2008," Mielke said in his paper at the same conference.

What is important now is how the industry should sort out re-plantings, yield improvements and acreage issues to retain world market leadership.

LMC International Ltd chairman Dr James Fry, meanwhile, said the global economy holds the key to the CPO price direction this year. Countries are expected to raise interest rates to deal with inflation and this will dampen economic growth.

"There are clear signs of a global economy overheating but CPO price has a relationship with petrol price. The impact on the local CPO price depends crucially on what happens to petroleum price." Fry forecasts the CPO price to rise to about RM4,300 a tonne but it can go as low as RM2,250 a tonne after spiking in the second quarter.

On production, Mistry said Malaysia's CPO output is expected to be 17.3 million tonnes this year, while Indonesia's would be 1.5 million tonnes higher than last year and hit 24 million tonnes.

Mielke, meanwhile, said Malaysia's palm oil production can touch 17.8 million tonnes in 2011 compared with 16.9 million tonnes in 2010, while that of Indonesia may touch 23.7 million tonnes in 2011 from 21.9 million tonnes in 2010.

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