Palm Oil May Reach 2,000 Ringgit by End-2009 as Demand Recovers

By Claire Leow and Susan Li

Nov. 14 (Bloomberg) -- Palm oil futures may climb to 2,000 ringgit ($556) a metric ton by the end of next year as demand revives to absorb record stockpiles, said Dorab Mistry, director at Godrej International Ltd.

Palm oil, used in food and as a fuel substitute, posted the worst monthly drop since at least 1995 in October amid concerns that the credit crisis may stifle demand for resources. Palm oil may average 1,000 ringgit in 2009, 64 percent lower than the forecast for this year, CLSA Asia-Pacific Markets said today.

``A lot of the bearishness is coming from the bad macro- economic picture around the world,'' said Mistry in a televised interview in Singapore today. ``If that improves then we should start going up, and perhaps 2,000 ringgit isn't inconceivable by the end of next year.''

Global demand for vegetable oils may rise by 6 million tons in the year to Sept. 30, 2009, helped by demand for biofuels, up from a gain of 4 million tons in the previous year, said Mistry, who has traded the commodity for more than three decades.

Mistry's price outlook is backed by Penny Yaw, an analyst at Citigroup Inc. in Kuala Lumpur. Palm oil prices may start rising by the second quarter of next year ``on slower supply growth and lower end-stock levels.''

``Data since 1976 shows that demand growth slows during recessions but does not decline in absolute terms,'' she said.

Palm oil prices have plunged 67 percent from a March record as supplies from Malaysia and Indonesia, the biggest producers, exceeded demand for food, and a slide in crude oil from a record lowered the attraction of vegetable oils as biofuels. Stockpiles in Malaysia reached a record 2.09 million tons in September.

Favorable Weather

``We had a year of excellent weather all around the world, which is unusual,'' Mistry said. ``We'll probably see a rally in the second quarter of 2009.''

Production of palm oil seasonally peaks in the third quarter and demand typically slows in October-December as the vegetable oil clouds over in colder temperatures.

Still, palm oil prices, headed for the first weekly loss in three, may have further to fall if crude oil slides, Mistry said.

``If crude goes down to $50 a barrel, palm oil will test the cost of production which, for inefficient plantations, is 1,200 ringgit a ton,'' Mistry said, reiterating his Oct. 31 forecast.

Crude oil for December delivery fell as much as 0.8 percent to $57.80 a barrel on the New York Mercantile Exchange. It was at $57.91 a barrel at 2:38 p.m. Singapore time. Prices have tumbled 61 percent from a record $147.27 on July 11.

Godrej is one of India's biggest importers of vegetable oils.

To contact the reporter on this story: Claire Leow in Singapore at at cleow@bloomberg.net; Susan Li in Hong Kong at sli31@bloomberg.net