Palm oil, used in everything from Twix candy to diesel fuel, may be poised to end its fastest rally in almost seven years and drop 25 per cent as the world’s biggest growers reap record harvests.
Indonesia and Malaysia, the top two producers, may boost world supplies by 5 per cent this year, according to government and producer estimates. India, the second-biggest buyer, will probably slow imports because of rising stockpiles, Citigroup Inc said.
The world’s most-used cooking oil, which closed at RM2,685 in Kuala Lumpur on May 8, may average RM2,100 (US$600) a ton in 2009, Deutsche Bank AG analysts Su-Yin Teoh and Rachman Koeswanto said.
“We expect palm oil to weaken,” said Sunaina Dhanuka, an analyst at Macquarie Group Ltd in Kuala Lumpur.
“Production is likely to recover in coming months as weather conditions improve and exports are likely to slow down to exhaust the current stockpiles.” Dhanuka forecast an average price of RM1,850 a metric ton this year in a May 5 report.
About US$33 billion worth of the oil, squeezed from bunches of plum-sized fruit, is consumed each year for frying and in margarine, based on estimates from the US Department of Agriculture and the current price.
The European Union agreed last year that at least 10 per cent of the energy used in road and rail transport in 2020 will come from renewable sources, such as vegetable oils.
Only Gasoline Better
Palm oil is the second-best commodity investment this year, with a gain of 58 per cent. Only gasoline’s 69 per cent jump has been larger among the biggest exchange-traded commodities, according to data compiled by Bloomberg. The cooking oil has climbed 93 per cent from a three-year low on October 24, the fastest gain since at least June 2002, according to Bloomberg data.
A drop to the level predicted by Macquarie would cut Malaysia’s export revenue by US$4.9 billion, assuming no change from last year’s volume. Net income of Kuala Lumpur-based Sime Darby Bhd, the world’s biggest producer by market value, may drop 38 per cent to RM2.18 billion in the year ended June 30, according to the median of 15 analyst estimates compiled by Bloomberg.
Prices advanced this year as declining output in Malaysia, the second-biggest grower, caused inventories to shrink 40 per cent from a record in November to 1.36 million tons in March, the lowest since July 2007, Malaysian Palm Oil Board data show. - Bloomberg
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