Palm Oil May Drop 7.4% as Output, Reserves Climb, Godrej's Mistry Predicts

Palm oil may tumble as much as 7.4 percent by the end of October as Malaysian production rebounds and Indonesian growers speed up shipments because of an export tax, according to Godrej International Ltd. 

Futures may decline by 150 ringgit ($48) to 200 ringgit a metric ton, Dorab Mistry, a director at Godrej, told an edible oils conference in Mumbai today. The company is one of India’s biggest buyers of cooking oil. 

Palm oil has jumped 19 percent from an eight-month low on July 7 on optimism consumption will increase in Asia because of festivals and excess rainfall may disrupt harvests in Malaysia and Indonesia, the top producers. Malaysian inventories climbed 23 percent to 1.72 million tons in August from July, the country’s palm oil board said Sept. 15. 

“Malaysian month-end stockpiles will rise and prices will need to go lower,” he said. Prices may remain “sideways with a lower bias for the next four to six weeks.” Mistry has traded vegetable oils for more than three decades. 

The December-delivery contract gained 2.1 percent last week to 2,701 ringgit a metric ton ($873) on the Malaysia Derivatives Exchange, advancing for a fourth straight week. 

Futures may trade between 3,000 ringgit and 3,200 ringgit by January as India and China, the biggest consumers, begin to rebuild inventory, said Mistry, who correctly forecast in March that palm oil would rise in the second half. He said prices may trade between 3,000 ringgit and 3,200 ringgit after June. 

“We have seen in history that every El Nino-inspired bull market has been followed by a very cruel bear market,” Mistry said, referring to the dryness caused by El Nino and higher- than-normal rainfall brought on by La Nina. “El Nino has been followed almost immediately by a La Nina” this year, impeding a recovery in global oilseed and oil output, he said.

Harvests 

Production in Malaysia will drop 2 percent to 17.2 million tons this year and output in Indonesia may expand 500,000 tons, Mistry said. Malaysia may produce 17.8 million tons, Plantation Industries and Commodities Minister Bernard Dompok said at the conference Sept. 24. Indonesia said Aug. 12 that production may fall to 19 million and 20 million tons, from 21 million in 2009. 

Global vegetable-oil demand will increase by 4.5 million tons in the year beginning Oct. 1, exceeding the 3.8 million tons increase in supply, Mistry said. 

India’s vegetable oil imports may increase to 9.3 million to 9.5 million tons in the year beginning Nov. 1 from 9 million tons this year, he said. Purchases will include 7.2 million tons of palm oil, 1.5 million tons of soybean oil and 400,000 tons of sunflower oils, Mistry said. 

“Production of oilseeds will recover somewhat but as I’ve said previously, Indian production is now largely irrelevant and will constitute a smaller and smaller proportion of consumption with each passing year,” he said. “China has gone this way and India is simply following a well-trodden path.” 

Expensive

Soybean oil prices will trade “sideways” to “slightly” lower for the next four to six weeks and the vegetable oil may become more expensive than palm oil, he said. Argentine soybean oil prices may reach $1,050 a ton free-on-board by January. 

Soybean oil’s premium over palm oil widened to $116.32 a ton on Sept. 24, the most since July 13, Bloomberg data show. 

Sunflower oil prices will exceed $1,200 a ton free on board as dry weather in Russia and Ukraine damage oilseed crops, while canola oil may climb closer to $1,200 a ton in the first quarter of next year, he said.Source: Bloomberg