Tuesday, March 9, 2010

Palm oil may surge up to 22pc in H1

Palm oil may surge as much as 22 per cent in the first half as drier-than-usual weather curbs output in Malaysia and yields in Indonesia, the world’s two largest producers, according to Prudential Bache Commodities LLC.

The El Nino weather phenomenon may drive prices to as much as RM3,300 (US$988) a metric ton, said Anne Frick, vice president for research at the New York-based commodities and financial derivatives broker. Malaysian output may not meet demand for local use and exports, Frick said in an interview.

The supply crunch may help to extend last year’s 57 per cent rally in the tropical oil and boost profits at producers including PT Astra Agro Lestari, Indonesia’s largest publicly traded plantations company. Higher prices may also contribute to increased food inflation in China and India, the biggest users.

“Below-normal rainfall in Malaysia will start to be felt in May-July and probably into the turn of the calendar year to 2011,” Frick said yesterday in Kuala Lumpur, where she’s scheduled to speak at a palm oil conference today. “The best chance to make the highs is the first half.”

Meanwhile, Godrej International’s head of vegetable oil trading Dorab Mistry said Malaysian crude palm oil futures may trade in the RM2,800-RM3,200 range after July as current El Nino-driven hot weather may cause a production shortfall in the second half of 2010.

Mistry said his forecast was within palm oil’s most “bullish period” that runs from the second half of 2010 until the first quarter of next year.

That forecast represents a rise of up to 18.3 per cent from current levels.

Palm oil futures on the Malaysia Derivatives Exchange closed yesterday at RM2,709 a ton, 1.7 per cent higher since the start of the year. Prices haven’t traded at more than RM3,000 since 2008.

Dompok’s Warning

Output in Malaysia, the second-largest producer, was forecast to gain 4.9 per cent this year to a record 17.8 million tons, the Finance Ministry said in October, months before El Nino peaked. Still, Plantation Industries and Commodities Minister Bernard Dompok had warned last July that output this year may drop as much as 16 per cent because of El Nino.

“I think it’s possible,” Frick said when asked if Malaysia’s output may lag behind demand from exporters and domestic users. Output and exports data from Malaysia “is the one that’s reported and traders that trade on. I think it has an upward bias on palm oil prices.”

El Nino, characterised by a warming of sea-surface temperatures across the equatorial Pacific, can cut rainfall in Asia, damaging crops including palm oil, rice, corn and sugar. It may also increase rainfall in South America, boosting yields of rival soybeans. Among the expected impacts in March to May are drier-than-average conditions over Indonesia, according to a March 4 report from the U.S. Climate Prediction Center.

Planted Area

The expansion of the planted area in Indonesia may help to counter the impact of declining yields in that nation’s total palm oil output, said Frick. Prices may range between RM2,400 and RM3,300 this year, she said.

The surge in prices will narrow palm oil’s discount to soybean oil, encouraging switching and pushing crushers to process more soybeans and boosting global vegetable oil supplies later this year, Frick said. “I wouldn’t be bullish on palm oil all the way out to the end of the calendar year,” she said.

Indonesia and Malaysia together account for 87 per cent of the global supply of palm oil, according to data from the US Department of Agriculture.

Output in Malaysia dropped 13 per cent to 1.32 million tons in January, the lowest monthly output since April 2009, according to the Malaysian Palm Oil Board. Exports rose 19.4 per cent to 1.46 million tons in January, it said. -- Bloomberg, Reuters

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