Singapore: Malaysian palm oil futures are expected to trade between 2,300 and 2,500 ringgit (Rs26,910 and Rs29,250) a tonne as high prices ration demand in India and other leading importers, a top industry analyst said on Wednesday.
“I expect the market to remain sideways for the next two months while we get to know the evolving fundamentals better,” Dorab Mistry, whose price forecast is closely tracked by the market, told an industry conference.
After the price forecast, the benchmark Malaysian palm oil futures fell as much as 1.6% in early trade on Wednesday to 2,449 Malaysian ringgit a tonne. The November contract fell as low as 50 ringgit, or 2%, at 2,439 ringgit.
“The third month is close to 2,500 ringgit but since Mistry’s estimate is between 2,300 and 2,500 ringgit, the price should come somewhere in between that estimate,” said a leading trader. “The fall today is also helped by the decline in soya bean oil.”
Vegetable oil imports by India, the world’s second largest buyer after China, are likely to be around 5.8 million tonnes (mt) in the year to October 2007, lower than an earlier estimate of 6.4mt, because of high prices, Mistry said.
“Per capita consumption has remained stagnant and we have lost almost half a million tonnes in consumption mainly due to high prices,” he said.
“I believe this is a very significant development and will be seen in many more price sensitive markets such as Pakistan, Bangladesh and parts of China and North Africa.”
India imported 5.4mt of oils in the previous season.
Mistry said lower import tariffs on edible oil had lifted India’s palm oil purchases. “There is also no longer any preference given to soya oil in terms of import duty. This has led to a bigger market share for palm in India.” India has brought down edible oil duties in stages and now imposes a 45% import duty on crude palm oil and 40% on soya oil.
He said monsoon rains had been beneficial for oilseed production in India but it was too early to estimate production. Mistry estimated Malaysia’s palm oil production this year at between 15.4mt and 15.7mt, against 15.9mt in 2006. “We entered a lean season in fresh fruit bunch production from January 2007 and this was expected to last until July or August 2007. Statistics from the Malaysian Palm Oil Board (MPOB) for July indicate we are not yet out of the woods.”
Mistry, a director with Godrej International Ltd, said sunflower oil prices could rise further, while rapeseed oil is likely to trade around $950 (about Rs36,600) per tonne ex-mill in Europe. “Sunflower oil has become the price leader and could go still higher from current levels of $1,100 to as high as $1,300 cost, insurance and freight Rotterdam.”
“The high prices of sunflower oil and rapeseed oil have, in the past month, given scope to soya oil and palm oil to move higher.” Malaysia’s crude palm oil production for the first seven months of 2007 was down 7% on the year at 8mt, according to MPOB data.
But Mistry said output in neighbouring Indonesia would exceed 17mt in 2007. “I estimate traditional food demand for vegetable oil to grow in 2007-08 by about 3mt at current high prices and by 4mt if prices decline by about 10%.”
Oils demand for making biofuel is expected to increase by 1mt, he said. “Overall, I expect total demand in 2007-08 to expand by 4mt if prices remain at current high levels, and by 6mt if prices decline by 10%.”