Palm Oil May Drop to $952 on Malaysia, Indonesia Output Jump, Mistry Says

Palm oil may slump to as low as 2,800 ringgit ($952) per metric ton in September as output jumps in Malaysia and Indonesia, the world’s two largest growers, according to Dorab Mistry, director of Godrej International Ltd.q

Malaysia may produce 19 million tons in 2011, 2 million more than last year, Mistry told a symposium in Sydney today, according to an advance copy of his remarks. Indonesian output may gain 3 million tons to 25.5 million tons, said Mistry. Palm oil traded at 3,134 ringgit at 5:23 p.m. in Singapore yesterday. 

Lower palm oil prices may help to ease global food costs that rallied to a record in February, according to a United Nations gauge, and held within 2 percent of that peak in June. Mistry, who’s traded the oil used in food and fuels for more than three decades, forecast a rebound to 4,000 ringgit in 2012. 

By September, “the peak summer demand will have gone, Indonesian biodiesel production will slow down dramatically and CPO production will rise strongly,” Mistry said according to the remarks, referring to crude palm oil by its initials. Malaysian stockpiles will reach a record in December, he said. 

Palm oil on the Malaysia Derivatives Exchange has slumped 21 percent since climbing to a 35-month high of 3,967 ringgit on Feb. 10 on expectations output will expand this year. Crude oil’s 28 percent rally over the past year has also lifted the appeal of vegetable oils in biofuels. Mistry said that his forecasts were based on crude oil at $85 to $105 per barrel.

Sime’s Forecast

Lower palm oil prices may hurt growers such as Malaysia’s Sime Darby Bhd. (SIME), the world’s biggest listed producer. Palm oil may remain at about 3,000 ringgit for the rest of the year on good demand, Franki Anthony, Sime Darby’s plantation managing director, said on July 22. 

Mistry’s forecast today is similar to his last public call in April, which was issued in Beijing. He said then that prices may decline to less than 3,000 ringgit as output in Southeast Asia expanded, before rallying in the final quarter. 

“I expect palm stocks on 1st December in Malaysia to be at a record high,” Mistry said in Sydney today, according to the remarks. Reserves in the second-largest producer reached an all- time high of 2.27 million tons in November 2008 and stood at 2.05 million tons last month, according to Bloomberg data. 

Global palm oil output will expand at least 6 million tons from last year as Papua New Guinea, Thailand, India and Colombia also see growth, he said. “We have a strong recovery in tree output, plus a strong increase in mature area,” Mistry said.

Record Production

Mistry’s forecasts for production in Malaysia and Indonesia are higher than official projections. Malaysian output may be 17.6 million tons in 2011, compared with 17 million in 2010, Plantation Industries and Commodities Minister Bernard Dompok said in March. 

Dompok’s outlook would match output in 2009 and compare with 2008’s record 17.7 million tons, official data show.

Indonesia expects output to rise 5.3 percent to 24.4 million tons in 2011, Gamal Nasir, director general for estate crops at the agriculture ministry, said in December. Production in Indonesia will rise 8.1 percent to 24 million tons in 2011, Hamburg-based researcher Oil World said in a July 19 report. 

Global biodiesel demand is expected to grow 3 million tons this year, while demand for food will expand 3.5 million tons driven by rising populations and better living standards in developing countries, according to Mistry. Palm oil competes with soybean oil for use in foods and fuels. 

Soybean oil will remain “steady” at $1,250 a ton free-on- board for the next few months due to biodiesel mandates in Brazil and Argentina, Mistry said. Still, the erosion in export demand for soybean oil from so-called price-sensitive countries will continue given its large premium over palm oil, he said. 

Large stockpiles of soybeans in 2011 from better-than- expected crops in Argentina, Brazil and Paraguay may lead to an increase of almost 12 million tons in the crushing of the oilseed compared with last year, Mistry said. That would help to produce 2 million tons more soybean oil in 2011, he said. 

“Soya-oil prices will only rally around December-January as we approach the end of the South American crush season,” Mistry said. “The soya oil premium over palm oil will narrow as a first step before we see any gains in soya oil.” Source: Bloomberg