Palm Oil May Climb 7% by First Quarter, Mistry Says

By Bloomberg News

Nov. 9 (Bloomberg) -- Palm oil prices may advance 7 percent by the first quarter driven by a revival of demand from China and India, the world’s two biggest importers, said Dorab Mistry, director of Godrej International Ltd.

“After a few weeks, as demand from China and India returns, I expect crude palm oil futures to begin to rise and to attain my target of 2,400 ringgit in the first quarter of 2010,” Mistry said in comments prepared for delivery at a conference in Guangzhou, China, yesterday. The prediction is the equivalent of $709 per metric ton.

Palm oil, used in cooking and fuel, has climbed 31 percent this year as crude oil gained 76 percent and rains and freezing weather threatened harvesting of the soybean crop in the U.S., the biggest producer, potentially reducing output of soybean oil.

Futures may reach 2,400 ringgit before the first quarter on speculation a strengthening El Nino may hurt production next year in Southeast Asia, Mistry said in an interview in Singapore today. Prices may even surge to as high as 3,000 ringgit by the end of 2010 if oil prices advance to $100 a barrel, he said.

“My belief is that once the dry weather hits Indonesia in a big way, the sentiment will turn very fast,” Mistry said. “The dryness should be coming in anytime now. Production will be affected in the second or third quarter.”

Energy Costs

The 2010 price outlook appears “friendly,” Mistry said yesterday, adding much will depend on energy costs. His 2,400 ringgit forecast is based on crude oil around $80 per barrel in the next few months, a euro around $1.50 and the rupiah around 9,400 to the dollar.

China and India appear to be “well-covered” at present and it’s possible that palm oil stockpiles will build in the next few weeks toward the end of the calendar year, he said.

Palm oil stockpiles in Malaysia, the second-biggest producer, will probably peak at 2.1 million tons at the end of December before declining in the New Year, said Mistry, whose speech yesterday was delivered in his absence as he was unable to attend the conference.

“Whilst this figure may seem daunting, it will represent less than six weeks consumption,” he said. “It is likely stocks will decline from January or latest from February onwards.” Inventories rose 12 percent to an eight-month peak of 1.58 million tons in September, the palm oil board said Oct. 12.

Price Pressure

“It is quite possible markets may come under pressure” and futures may break 2,100 ringgit temporarily, he said. “I no longer expect CPO futures to decline to 1,900 and believe they have bottomed out at the recent low of 2,020,” he said.

January-delivery palm oil fell 0.9 percent to 2,226 ringgit ($658) a ton at the midday break on the Malaysia Derivatives Exchange. The contract closed at 2,246 ringgit on Friday.

The Southern Oscillation Index had turned “sharply negative” in the past three to four weeks and this is “usually a clear pointer to a strengthening El Nino,” he said. “It appears that we are on the brink of dry weather and rainfall deficits in Malaysia as well as Indonesia,” he said.

“A new stronger El Nino will have a profound effect on CPO production” in June to September, he said.

Palm oil stockpiles in Indonesia, the world’s biggest producer, will increase in the coming months because of higher output, Derom Bangun, a deputy chairman of Indonesia’s Palm Oil Board, said Nov. 2.

Indonesian Output

Inventories probably increased to 1.7 million tons in October, compared with the August and September average of 1.3 million tons to 1.4 million tons, he said. Mistry has previously forecast that Indonesian production would gain by 2 million tons in 2010 and Malaysian output by 500,000 tons.

Imports of vegetable oils by India will be “more or less the same” in the year starting Nov. 1, 2009, as in 2008-2009 or about 8.6 million tons, he said. Palm oil purchases by the country, the largest importer, will be 6.9 million tons, up from 6.65 million, he said. Total consumption of vegetable oils will gain by 500,000 tons on strong economic growth, he said.

“India’s industry has weathered the recession in very good shape and is now poised to grow strongly,” he said. “This will have an effect on per capita consumption.”

Soybean oil’s premium over palm oil may narrow after April as soybean production in South America increases and palm oil supplies slow in Southeast Asia, Mistry said today. “There’s a lot of money to be made on that spread,” he said.

--Feiwen Rong. With assistance from Leslie Tan and Luzi Ann Javier in Singapore and Zeb Eckert in Hong Kong. Editors: Wendy Pugh, James Poole

To contact the Bloomberg News Staff on this story: Feiwen Rong in Beijing at frong2@bloomberg.net