Palm Oil ‘Close to Bottom’ After Slump, Goldman Says

By Angus Whitley

Nov. 24 (Bloomberg) -- The price of palm oil, down 67 percent from a March record, is near the end of its decline because supplies will slow and demand for the edible oil will ride out the global slowdown, Goldman Sachs Group Inc. said.

The price is “close to a bottom,’‘ analysts led by Patrick Tiah in Singapore said in a report. “Edible oil demand has remained relatively resilient even during severe recessions.’‘

The prices of crude oil and other commodities have tumbled this year on concern the worldwide economic slump will reduce demand. Malaysia and Indonesia, the largest producers of palm oil, are felling oil palms and planting younger saplings to cut output. Palm oil is their biggest agricultural export.

The price of the edible oil, based on previous cycles, is mainly driven by supply, Goldman said in today’s report. The replanting will help reduce output, while the yield from plantations is under “stress,” Goldman said. It’s not clear when any rebound will happen, according to the report.

Palm oil, used in cooking and to make biofuels, on March 4 reached a record 4,486 ringgit ($1,236) a metric ton in Malaysia, home to growers such as IOI Corp. and Sime Darby Bhd. The commodity today rose as much as 2.3 percent to 1,493 ringgit and traded at 1,478 ringgit at 10:55 a.m. local time.

Still, Goldman cut its price forecast for palm oil for the next two years by between 41 percent and 50 percent, joining analysts at CLSA Asia Pacific-Markets and UBS AG.

Goldman cuts its rating on Sime Darby, the world’s largest producer of palm oil, and Kuala Lumpur Kepong Bhd., Malaysia’s third-biggest grower, to “sell,” citing “near-term risks” to prices of the commodity.

Sime, which has halved in the past year, gained as much as 2.4 percent to 6 ringgit, and traded at 5.9 ringgit at 11:09 a.m. Kuala Lumpur Kepong stock rose 3.1 percent to 8.25 ringgit.

Palm oil will probably fetch 1,000 ringgit a ton in 2009, and 1,250 ringgit in 2010, analysts at CLSA said in a Nov. 14 report. UBS on Nov. 6 cuts its price forecast for 2009 by 31 percent to $450 a ton.

To contact the reporter on this story: Angus Whitley in Kuala Lumpur at awhitley1@bloomberg.net