Palm Oil Forecast Raised by RBS on El Nino, Crude

By Claire Leow

Jan. 27 (Bloomberg) -- Palm oil may average $850 a metric ton this year, more than previously forecast, as El Nino pares production and higher crude oil prices lift demand for biofuels, said Nirgunan Tiruchelvam, an analyst at Royal Bank of Scotland Asia Securities (Singapore) Pte. in a report today.

Tiruchelvam raised his forecasts to $950 a ton for 2011, and to $950 a ton for 2012. Palm oil in Rotterdam, which averaged $681 last year, closed at $760.50 a ton yesterday.

“We expect El Niño and tree stress to depress productivity,” he said in the report. “Higher crude prices should vastly improve the viability of crude palm oil-based bio- diesel.”

Central Pacific Ocean temperatures are “well above El Niño thresholds” and some areas “generally remain above values observed at the peak of the 2006 El Niño event,” the Australian Bureau of Meteorology said on its Web site on Jan. 20. El Niño causes dry weather in Southeast Asia, hurting crops.

Between the weather phenomenon and higher demand for alternatives to fossil fuels, palm oil inventory could be depleted because of “significant under-investment in agriculture, combined with demand growth,” Tiruchelvam said.

Palm oil stockpiles in Malaysia, the second-biggest producer, last month reached 2.24 million tons, the second- highest level on record.

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Tiruchelvam recommended Indofood Agri Resources Ltd. and Golden Agri-Resources, both companies with plantations in Indonesia and shares listed in Singapore, as his top picks.

“We see potential for the sector to be re-appraised as a green energy play,” he said.

Indofood Agri shares may reach S$3.41 in 12 months, from a closing price of $1.98 yesterday, while Golden Agri may reach 71 Singapore cents, from a close of 50.5 cents yesterday, he said.

Among Malaysian planters, he recommended IOI Corp., Kuala Lumpur Kepong Bhd., and Sime Darby Bhd. He also advised investors to buy Indonesia-listed planters PT Perusahaan Perkebunan London Sumatra Indonesia and PT Astra Agro Lestari.

His price forecasts are based on crude oil at $75 a barrel this year, exceeding $80 a barrel next year and rising above $90 a barrel in 2012 amid a global economic recovery.

Crude oil in New York averaged $62.10 last year and traded unchanged at $74.71 a barrel at 11:46 a.m. Singapore time. Biofuels are produced by mixing ethanol from sugar -- or oils from corn, soybeans or palm fruit -- with fossil fuels.

To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net;