Business Times Mistry expects palm futures to top RM3,000

Malayasian palm oil futures could soon surpass a key psychological level of RM3,000 as Asian buyers hunger for more of the vegetable oil at a time of low stocks and weak output, a top industry analyst said today.

Dorab Mistry, head of vegetable oil purchasing at Indian conglomerate Godrej International, said orders from the world’s top two buyers of vegetable oils — China and India — were set to jump as the world economy recovers.

Palm oil supplies are dwindling in top producers Indonesia and Malaysia due to weak output arising from lack of fertiliser use when prices fell dramatically last year, coupled with volatile weather and yield stress after months of good harvests.

In addition, the top two soy exporters, the United States and Brazil are experiencing low stocks after a supply shortfall in third largest soy producer Argentina, which may result in a powerful bull market emerging for vegetable oils, said Mistry, who is based in London.

“The situation in soya is more bullish than in palm and soft oils will soon take price leadership,” he said in a speech to be delivered at a regional palm oil conference in Tokyo.

“However, price-conscious markets like India will chase palm and therefore I expect Bursa Malaysia crude palm oil futures to exceed RM3,000 (per tonne) very quickly,” he said.

Traders consider this figure a key resistance level after prices exceeded it last year before falling back to just over RM1,000, from which they have since struggled to recover.

Benchmark Malaysian prices on Friday were just 12.7 per cent below RM3,000 level. Malaysian refined palm olein FOB traded at US$830 per tonne for June compared to European soyoil at US$886 in Rotterdam last week, Reuters data showed.

China will buy more vegetable oil in the second half than the first as its 4 trillion yuan stimulus package has revived some consumption and current total shipments are 24 per cent behind imports of 8.1 million tonnes last year, Mistry said.

But India will now drive palm and soyoil demand rather than China after the government scrapped import taxes for edible oils, starting with palm oil, last year. Mistry said purchases would hit 8.5 million tonnes for the oil year ending October 2009.

“India’s low per capita consumption was artificially suppressed by high import duties and now that the heavy burden has been lifted, it has come into its own,” Mistry said, pegging demand at 1.4 kilos per person. India has 1.1 billion people.

Surging Asian demand will chase low palm stocks in Malaysia, which are expected to stay below 1.4 million tonnes until mid-August as output will recover that month when the low yield cycle draws to an end and more fertiliser is used, Mistry said.

“Replenishment of stocks will be very gradual and will commence only in mid-July. I expect Malaysian palm oil stocks to peak in November at 1.7 to 1.8 million tonnes at best,” he said. - Reuters