Some Outlook On Palm Oil Prices For 2009

Some outlook on the palm oil sector.

• Palm Oil Prices May Gain Near-Term; Fall In 2H 2009
  
  KUALA LUMPUR (Dow Jones)--Global vegetable oil prices may find support during the next quarter as palm oil stocks fall in Southeast Asia and soybean production remains low in south America, but the outlook is bearish for the second half of 2009, according to analysts.
  
  Three of the five analysts who gave their forecasts at the conclusion of a three-day vegetable oils conference here said palm oil prices could potentially fall to around MYR1,500/ton despite the current euphoria over dwindling stocks.
  
  Prices are hovering around MYR1,920/ton now.
  
  But a major worry for most participants was the narrowing gap between the prices of palm olein and crude soyoil, as palm oil prices rose in recent months amid falling stocks and strong demand.
  
  Malaysian palm oil stocks are estimated to have fallen to a 14-month low of 1.56 million tons at the end of February.
  
  London-based analysts, Dorab Mistry and James Fry said palm olein may briefly sell at a premium to soyoil but this will result in a shift in demand away from palm oil.
  
  The global economic slowdown that will result in an overall decline in demand will also weigh on prices, they said.
  
  "This year, we must pay attention to demand rather than supply," noted Mistry, the London-based director of India's Godrej International.
  
  Edible oil demand growth may be no more than 2.0 million tons this year compared with the usual rise of 4.0 million tons to 5.0 million tons, he said.
  
  Demand for vegetable oils to make biofuels, which had pushed up prices to record highs during the last two years, may remain unchanged or register a very modest growth of less than 500,000 tons, he said.
  
  Fall In Production Seasonal, Won't Last
  
  Fry said the fall in palm oil output in Malaysia is only seasonal while the stock-output ratio is still not very tight.
  
  In neighboring Indonesia, strong production and large stocks may continue to weigh on prices, said Richard Kastilani, director of Tropical Oil Products Ltd., an exporter of palm oil.
  
  He said Indonesia started the year with a large stockpile of 2.7 million tons of palm oil and is heading for another year of record production which may hit 22.4 million tons in 2009.
  
  By the end of the year, Indonesian inventories may surge to 3.3 million tons, he said.
  
  Kastilani said prices are likely to move between MYR1,550 and MYR2,000 during the next four months.
  
  According to Mistry, while prices may test MYR2,100 during the next few weeks, they can fall to MYR1,500 during the second half of 2009.
  
  Fry had an even more bearish forecast, predicting CPO could fall to MYR1,400-MYR1,500 this year.
  
  Lower Soyoil Output May Support Prices
  
  However, some have pegged their hopes on a sustained drawdown in stocks during the April-June quarter and a smaller soybean crop in South America.
  
  That could help CPO rise by $70-$100/ton to an average $640/ton, cost and freight Rotterdam, in the first half of 2009, said Thomas Mielke, editor-in-chief, Oil World, a Hamburg-based industry publication.
  
  Mielke said palm olein prices may even rise to $670/ton, free-on-board Malaysia, from the current level of $615.
  
  He said South America's soybean production this year will likely be around 106 million tons, down from 115 million tons last year and way below earlier expectations of around 118 million tons.
  
  The tight supply of soyoil will have to be offset by higher exports of palm oil, said Anne Frick, New York-based vice-president of Prudential Bache Commodities.
  
  Frick said CPO prices are likely to move between MYR1,700/ton and MYR2,300/ton for the rest of the year.
  
  Several traders argue that if freight cost are taken into account, palm oil will continue to be the cheaper alternative in most Asian markets despite the price gap with soyoil narrowing considerably.
  
  "In times of recession, when buyers are more price-sensitive, they will buy the cheapest oil which is palm oil. The narrowing difference in prices doesn't take into account the freight and refining costs of soyoil," said an executive at a global trading company.
  
  He said palm oil also has a captive market in India where duty waiver on CPO imports is likely to push inflows to an all time high of more than 5.5 million tons.
  
  That could boost prices to MYR2,200/ton by June, Kuala Lumpur-based analyst M.R. Chandran said.

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• CPO Prices May Fall To MYR1,500/Ton - Analyst Mistry
  
  KUALA LUMPUR (Dow Jones)--Crude palm oil futures on Malaysia's derivatives exchange may rise towards MYR2,100 a metric ton in the next few weeks but are likely to fall during second half of this year to MYR1,500 during a slowdown in demand and higher global supply, London-based vegetable oils analyst Dorab Mistry said Thursday.
  
  He said soyoil prices may fall to $500/ton, free on board, Argentina from April, if the upcoming U.S. soybean plantings turn out to be higher on year. Wednesday, soyoil was offered at $615.
  
  He also said soybean prices on the Chicago Board of Trade are likely to fall to $7 a bushel. CBOT March soybeans settled 14 cents lower Wednesday at $8.75.
  
  RBD palm olein prices may fall to $500/ton, fob, Malaysia in the second half of this year from the current levels of around $610.
  
  Mistry said investment funds are no longer very active in commodity futures.
  
  "In the macro-economy, world trade is shrinking, credit availability is scarce. Output is falling, prices are falling, and there is a very real threat of deflation. These are troubled times," Mistry said, addressing an international conference on vegetable oils.
  
  It is likely that there will be a tightening of palm oil stocks in Malaysia during the first half of 2009, but production will start to recover from August onwards due to recent better use of fertilizers, Mistry said.
  
  He said beyond April and May, palm oil will become uncompetitive against South American soyoil and will lose market share.
  
  "For the second half of the year, CPO prices may come under pressure from soyoil and also higher production and weaker demand," noted Mistry.
  
  He said this will weigh on palm olein prices and lauric oils will follow palm olein downward.
  
  Soyoil prices are also expected to fall, but due to weakening of local currencies, the impact on exporters in Brazil and Argentina will be cushioned.
  
  He said global supply of vegetable oils is likely to rise by 4.7 million tons during the current marketing year to September 2009.
  
  Global demand may increase during the same period by only 2.5 million tons, including 2 million tons for food and about 500,000 tons to make biofuels, he said.
  
  As a result, incremental supply will exceed demand by around 2.2 million tons. This is the second successive year that supply will exceed demand.
  
  Mistry, whose forecasts on demand, supply and prices are tracked worldwide, said food demand for vegetable oils generally increases by anywhere between 4 million and 5 million tons annually.
  
  But the global economic recession can badly affect demand, he noted.
  
  He said more importance may have to be given this year to issues relating to the macro-economy rather than the market fundamentals of vegetable oils alone.
  
  Soybeans and Rapeseed
  
  There are also several bearish factors for soybeans and rapeseed, Mistry said.
  
  The weakening of the La Nina weather phenomenon has improved the prospects for soybean crop in Argentina, which is likely to be 43 million tons in 2009 in addition to the carry-forward stocks of six million tons from the previous year.
  
  Brazilian soybean crop is also likely to exceed expectations and be around 58-59 million tons. There is a possibility of soybean acreage expanding in the U.S. as reserve area may be released for cultivation.
  
  Soybean production may be better than earlier expectations while demand for soymeal is likely to be affected by recession.
  
  Rapeseed crop has been bigger than expected in Canada and Australia. China has harvested close to 12 million tons of rapeseed, apart from importing record volumes while India's rapeseed crop is likely to be around 6.4 million tons.
  
  Rapeseed oil production may rise by 1.4 million tons this year while sunflower oil output too may increase by 1.5 million tons.