Palm oil may rise 15% by September 2008

Palm oil futures in Malaysia may advance as much as 15 per cent over the next year because of rising demand and a shortfall in supplies of vegetable oils, said Dorab Mistry, director at Godrej International.

Prices may climb as high as 3,000 ringgit ($871) a tonne in the year ending September 30, 2008, Mistry, who has traded vegetable oils since 1976, said at a conference in Goa. Prices will surpass 2,500 ringgit this year, he predicted on May 3.

Vegetable oils are increasingly used in bio-fuels as crude oil prices tripled to a record in five years. US farmers have planted more corn to meet demand for ethanol, pushing sowings of soybeans to a 12-year low. Malaysia and Indonesia account for about 90 per cent of world palm oil output.

Palm oil the Malaysian Derivatives Exchange, which trades the global benchmark, touched a record 2,764 ringgit on June 6 and has averaged 59 per cent more since January than a year ago. The most active contract gained 1.4 per cent to 2,606 ringgit on September 21. Soybean oil is palm oil's main competitor.

Demand for vegetable oils in the year to September 2008 may rise by 5 million tonnes, while supply may increase by 3.9 million tonnes, Mistry said. The incremental demand includes 2 million tonnes for bio-fuels and 3 million tonnes for food purposes, he said.

Not all traders are backing Mistry's price outlook.

Palm oil prices may fall as low as 2,250 ringgit by January as output expands, James Fry, managing director at commodity and biofuel researcher LMC International said at the conference. That's a 14 per cent lower than the closing price on September 21.

Global palm oil production may rise to a record 41 million tonnes in the year to September 2008, from a likely 37.38 million tonnes this year, as crops recover from the dry season in Malaysia and Indonesia, Thomas Mielke, chief editor of OilWorld, a trade publication, said. He expects prices to trade between 2300 and 2600 ringgit in the next 12 months.