Kuala Lumpur: Palm oil prices are holding on to last year’s strong gains, despite a global flight from risky assets, and when industry analysts gather in Malaysia next week they are likely to say that the rally is far from over.
Bullish demand from India to the United States and dry weather hurting supplies in Indonesia could push prices to new highs for the product widely used as a cooking oil, but also for cosmetics, soaps and, increasingly, for fuel.
“There is a tremendous demand from the food sector and there is not going to be sufficient supplies of other competing oils,” said M.R. Chandran, a leading industry analyst and a former head of the Malaysian Palm Oil Association.
Crude palm oil prices soared 40% last year on the back of global expansion into vegetable oil-based biofuels, boosting investor fortunes and profits of plantation firms.
Malaysia’s key plantation index has jumped 55% since January last year. Malaysian benchmark crude palm oil futures closed at 1,943 ringgit (Rs25,259) a tonne on 6 March 2007, just 6% off the eight-year high hit at the end of 2006.
Bursa Malaysia, an exchange holding firm, is organizing the annual palm oil price outlook meet from 12 to 14 March, where industry gurus Dorab Mistry, James Fry, Thomas Mielke and others will present their views and price forecasts.
“More or less the market knows what they are going to say is that things will be even better this year, but how much better that remains to be seen,” said Ivy Ng, an analyst with CIMB Investment Bank.
Analysts expect strong demand from the traditional food sector, led by India which is likely to buy more this year after dismal oilseed production.
“We are looking at the fundamentals, demand is going to be strong from India because they have not had a good oilseed harvest last year and the impact is trickling into this year,” Ng said.
India’s oilseeds output in the year ending October 2007 is expected to fall by two million tonnes to 21.98mt on lower acreage, according to the Central Organisation for Oil Industry and Trade. Traders say India’s vegetable oil imports could go up by nearly one mt to 6.1mt this year.
There will be no let up in demand from China, which continues to lead the pack of global edible oil guzzlers, and people in the US are being told that palm oil is a healthier alternative to hydrogenated oils.
“Transfat issues in the US mean a lot of food producers will switch to palm oil because palm does not produce transfats,” said an analyst with a commodities research house.
US palm oil imports in 2006 increased nearly 50% from the previous year, reaching 0.6mt, and have more than tripled since 2003, US department of agriculture statistics show.
Industry officials said global edible oil production is likely to increase by 1.2mt to 1.3mt, sufficient to meet more demand from the food sector.
“We will have 1.2 to 1.3 million tonnes of additional oil this year and India alone will import one million tonnes extra,” said Chandran. “That is just enough for food and we have not taken biodiesel into account.” The edible oil industry expects soybean plantings in Brazil and the US to decline as farmers switch to corn and sugarcane due to strong ethanol demand.
And early indications are that Indonesia, the world’s second largest palm producer, could have problems withoutput because of unusually dry weather.
“We have seen less rainfall in Indonesia and if you were looking forward to a strong growth in output from Indonesia, you are going to be disappointed,” said a Singapore-based edible oil trader.
A sharp decline in crude oillast year failed to dent the sentiment in palm oil markets and it is unlikely to play spoilsport this year, according to industry officials. “People are talking about biodiesel plants coming on stream in the second half, but no one knows how many plants and what capacity,” said the Singapore trader. “Till the time that uncertainty is there, bullish sentiment will stay.”