DJPO: Palm Oil Prices to Hit 3000 by June, May Reach 3500 On El Nino - Mistry.
KUALA LUMPUR--Palm oil futures on the Bursa Malaysia are likely to rise 5%
from current prices to MYR3,000/ton by June due to sluggish production, low
stockpiles and biodiesel demand, said high-profile industry analyst, Dorab
Mistry.
BMD CPO prices will need to quickly move up to MYR3,000/ton so as to temper
demand and enable stocks in Indonesia and Malaysia to be maintained at levels
that are feasible for the market, he said at a conference in Kuala Lumpur.
"Prices should not rise beyond MYR3,000/ton unless climatic conditions change
for the worse," he said, referring to current dry weather in Indonesia and
Malaysia.
Should the weather improve with rains arriving next week, the outlook up to
June this year remains at MYR3,000/ton, said the London-based analyst, who is
also a director at Godrej International Ltd., which trades vegetable oils. Beyond June, prices will depend on the weather.
Should rains arrive normally, prices are likely to trade in the
MYR2,600-MYR2,900/ton level from July to October. However, if the El Nino weather phenomenon develops, BMD CPO will "cling" to
MYR3,000/ton beyond June, Mr. Mistry said. With production likely to be affected
from late 2014 as a result of that, BMD CPO may move toward MYR3,500/ton, he
said.
The El Nino phenomenon is associated with unusually dry conditions in Asia.
Meanwhile, there is a 30% or less chance that palm oil production will surpass
expectations if rainfall is better than normal, and if prices of Brent oil fall
amid uneventful normal production of world oilseeds, he said. This may send
prices below MYR2,400/ton.
Mr. Mistry was making the forecasts on assumption that Brent will trade in the
$100-$110 a barrel range this year, and that the U.S. dollar will be relatively
stable. At midday Wednesday, benchmark May BMD CPO closed MYR46 higher at
MYR2,847/ton, near a 17-month high hit Monday.
BMD CPO prices have risen recently due to excessively dry weather in the major
producing countries of Indonesia and Malaysia. Together, the two countries
account for some 90% of global palm oil production.
Mr. Mistry is estimating Malaysia crude palm oil production at 19.5-19.7
million tons this year, assuming that the current dry spells end and that rains
resume their normal pattern for the rest of the year.
Indonesia is likely to produce 30.5 million tons of crude palm oil this year,
just 3 million tons more than this year, with most output growth expected in the
last quarter of the year. This production forecast is an "optimistic figure if
the current dry weather does not end very soon," he added.
As the Indonesian government is boosting the use of palm oil in biodiesel
blends, prices are likely to hold high "for a long time", said Mr. Mistry, as
the capacity will have to be locked in palm oil prices a year in advance,
reducing the availability of freely tradable palm oil.
For the October 2013-September 2014 oil year, Mr. Mistry says world palm oil
production is likely to grow by just 3 million tons or even less, due to impact
of dry weather conditions.
Source: DJPO; Write to Huileng Tan at huileng.tan@wsj.com