Mixed views on palm oil prices

MOSCOW, Russia: ANALYSTS at the recently-concluded Palm Oil Trade Seminar (POTS) 2013 here have mixed views on the outlook for palm oil prices.

Oil World executive director Thomas Mielke said palm oil prices are likely to slide further as global edible oil stocks are set to increase sizeably in the next few months.

As some 200-odd participants settled in at the seminar hall here, Mielke struck a sombre note among vegetable oil producers when he said prices are expected to trade rangebound with downward pressure in the next three months.

Founded in 1958 by Mielke's father, Siegfried, Oil World is now recognised worldwide as the authoritative information provider for oil seeds, tropical oils and animal feed.

Mielke said global production of 17 oils and fats has doubled in the last 20 years to 189 million tonnes this year. Crude palm oil (CPO) alone makes up 56.5 million tonnes, or 30 per cent of the total, clinching the top spot. 

"By year-end, Malaysia is set to produce 19.2 million tonnes of CPO while the volume in Indonesia is expected to touch 29 million tonnes," Mielke said on the sidelines of the seminar. 

"We are seeing a major recovery in the supply of soft oils, particularly those extracted from sunflower grown in the Black Sea region. Since the start of this month, sun oil has been offered at US$850 per tonne, below that of soya and rapeseed.

"Global supply of sun oil has risen by 1.6 million tonnes. This is set to rise even more sharply in the next few months. This will have an impact on CPO prices," he said.

"Global palm oil stocks, particularly from Malaysia and Indonesia, have reached their low levels. We think these levels will start to rise again, possibly by another 2.2 million tonnes until the end of the year. This is likely to put pressure on CPO prices, which are currently averaging at RM2,350 per tonne," he added.

Yesterday, the third month CPO benchmark on Bursa Malaysia Derivatives Market rose RM9 to close at RM2,309 per tonne.

Asked if the additional volume of edible oils in the market could press CPO prices to below the psychological low of RM2,000 per tonne, Mielke shook his head. "No, I don't think the forecast decline in palm oil prices would be that drastic." 

LMC International Ltd chairman Dr James Fry, who was also present at the POTS series, took on a more optimistic view. 

He said the price gap between crude petroleum and CPO favours more consumption of palm biodiesel. The current CPO price of RM2,300 per tonne works out to be US$85 per barrel cheaper than crude petroleum. "We're back to where we were nine months ago." 

The Malaysian Palm Oil Board's data shows that for the first eight months of this year, biodiesel exports rose sixfold to 114,414 tonnes, compared with the same period a year ago.

Since production of palm biodiesel is profitable, oil companies in Indonesia and Malaysia have started to mop up CPO from the local market to blend with regular diesel. 

"This has helped to bring down stocks. Currently, CPO prices are trading near the bottom. If crude oil (price) doesn't change from the current levels, I don't see CPO prices settling further. If Asia's biodiesel usage were to go up, CPO prices may well rise in the months ahead," he said.

Godrej International Ltd director Dorab Mistry, in his paper, concurred with Fry that current vegetable oil prices are closely linked to fuel prices, but questioned how long this trend would hold up.

Dorab said CPO prices has bottomed out at RM2,137 per tonne since two months ago.

In his forecast, Dorab identified weather as the most important factor in agricultural commodity prices. "We'll need another El Nino or a La Nina for a new bull market."