Palm oil, the world’s most consumed vegetable oil, must decline to 2,200 ringgit ($653) a tonne in the next few weeks for demand to rebound, said Dorab Mistry, director at Godrej International.
“We have at present a deadly cocktail of rising production combined with some demand rationing,” he said at a conference in Kuala Lumpur. “Prices have to go to the level where they create strong demand growth.”
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Palm oil fell to a 15-month low last week as supplies from Malaysia and Indonesia, the biggest producers, outpaced demand for food, and as a drop in crude oil from a record lowered its attraction as a biofuel. Global demand for vegetable oils may expand 6.5 million tonnes in the year from October, less than the 6.8 million tonne increase in supplies, Mistry said.
“Big production and big stocks will weigh on the market,’’ he said.
Malaysian palm oil stockpiles reached a record 2.04 million tonnes in June before falling to 1.98 million tonnes in July, according to the Malaysian Palm Oil Board. Indonesia’s crude palm oil output may exceed 19 million tonnes this year, while Malaysia may produce more than 17.4 million tonnes, Mistry said.
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Mistry, who has traded vegetable oils since 1976, scrapped his prediction for palm oil to reach 4,500 ringgit by February next year. The futures for November delivery dropped 4.2 per cent to 2,600 ringgit on Monday in Kuala Lumpur, down 42 per cent from its March 4 peak of 4,486 ringgit.
“Over-optimistic”
“I must confess that my medium term forecast” was “over- optimistic,” said Mistry, who has correctly predicted the palm oil prices in the past two-and-half years. “I got the market wrong.”
The forecast of 2,200 ringgit is based on crude oil prices staying within a 10 per cent band of $100 a barrel, he said. Oil is trading 22 per cent below its July 11 record of $147.27.
Recorded prices may cut global vegetable oils demand for food and fuel by 1.5 million tonnes in the year to September and a recovery next year will depend on prices, he said.
The slump in palm oil prices prompted Indonesia to consider mandating use of the cooking oil to make bio-fuels and Malaysia to boost exports and local consumption to support prices. Buyers in China and India, the biggest importers, are seeking to defer deliveries and renegotiating purchases.
Soybean oil is traded at an “unsustainable premium” to palm oil. The commodity, palm oil’s main competitor, needs to decline substantially from current levels, Mistry said.
Soybean oil was 46 per cent more expensive than palm oil on July 28, the most in two years.
Palm oil historically trades at a discount to soybean oil, from crushed soybeans, as it’s harder to store and turns cloudy in cooler temperatures, limiting its use in the winter months in the northern hemisphere.