IOI Corp, Malaysia’s second-largest palm oil producer, is confident the tropical commodity will maintain this year’s rally in the third quarter, aided by higher prices of substitute soybean oil.
“We’re bullish on the price outlook” in the next three months, IOI executive director Lee Yeow Chor said in an interview in Kuala Lumpur today.
“We are not selling that much forward,” he said, indicating that the company is confident forward contract prices will rise.
Palm oil for September delivery, the most-active contract, fell 1.2 per cent to RM2,221 a ton at 4.56 pm on the Malaysia Derivatives Exchange, compared with the March delivery price of RM2,168.
Lee declined to forecast a price range, or confirm a report from brokerage RHB Research Institute last week that quoted IOI as saying prices may recover soon to trade between RM2,800
and RM3,000 a metric ton for the rest of the year.
Palm oil has gained 32 per cent this year. Prices have slipped 21 per cent from the year’s high of RM2,799 a ton on May 13 on concern over expanding stockpiles and dwindling exports.
Still, Lee said he expects the high premium of soybean oil over palm oil, a direct substitute, to support prices.
“Soybean prices have moved quite high,” he said. Besides a seasonal gain in third-quarter demand for palm oil for festivities such as Ramadan, when Muslims feast after sundown after fasting during the day, “another thing that gives me comfort is now the discount of palm oil versus soybean oil has increased.
This will give a very strong underlying support for palm oil,” he said.
Soybean oil in Chicago commands a premium of 24 per cent over palm oil today, compared with 17 per cent at the end of May and 10 per cent at the end of April, according to Bloomberg data, making palm oil a more attractive alternative.
Profit Tumbled
On May 15, IOI said its full-year profit would fall from last year’s record as the global recession hurt demand. Its fiscal third-quarter profit was almost wiped out amid lower palm oil prices and currency-exchange charges on US dollar debt.
Net income fell 94 per cent to RM37.4 million in the quarter ended March 31, from RM601.6 million in the same period a year earlier.
The translation loss on dollar- denominated bonds was RM232.4 million. The ringgit fell 5.3 per cent against the dollar in the first three months of 2009.
Malaysia is the second-biggest producer of palm oil after Indonesia. The two countries account for 90 per cent of the world’s production. - Bloomberg
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