Palm oil rate likely to surge on demand hike

Palm oil rate likely to surge on demand hike

Bali: Palm oil may rise as high as $1,000 (Rs39,300) a tonne next year because of increasing demand and a shortfall in supplies of vegetable oils, according to Derom Bangun, the head of the Indonesian Palm Oil Association.

Prices may average $900 a tonne, Bangun said on Thursday at a conference in Bali. Palm oil futures climbed to a record 3,000 ringgit (Rs35,430) a tonne on Wednesday on the Malaysian Derivatives Exchange, which trades the global benchmark.

Vegetable oils are increasingly used to make biodiesel as crude oil prices more than tripled to a record in five years. US farmers have switched to corn to meet demand for ethanol, pushing soybean acreage to a 12-year low. Soybean oil, the main substitute for palm, rose to a 33-year high in Chicago on Wednesday.

“Only a correction in crude oil prices will bring palm oil lower," Chris de Lavigne, global vice-president at consultant Frost & Sullivan Inc., said. “Moving into the first quarter of 2008, we could see crude oil as high as $120 a barrel, and crude palm oil will go to $1,000 a tonne."

China and India, the biggest vegetable oil buyers, import palm oil to fill shortages in supplies of soybean, groundnut and canola oils. China purchased 3.9 million tonnes (mt) of palm oil from January-September, 1% more from a year earlier, while India imported 2.62mt, up 32% from a year ago. Prices may reach 3,400 ringgit a tonne in six months if crude oil exceeds $100 a barrel, said James Fry, managing director at researcher LMC International Ltd. Palm oil may “settle" at 3,000 ringgit if crude fails to rise above the $100 mark, he said.

Palm oil often moves in the same direction as crude oil prices, which rose above $98 a barrel on Wednesday in New York. Crude gained 21% in the past month due to drop in dollar and other factors.