02/08/2012 (Moneycontrol.com) - Nirmal Bang has come out with its special fundamental report on Palm Oil. According to the research firm, prices are expected to appreciate by 10-15% in the coming six months.

The oil and the oilseed complex have seen a major bull run over the last two months. The rise in prices was largely attributed to the weather anomalies in India and US. After the crop setback from South America, the dependency increased on US to fill up the global deficit but the ongoing heat waves and lack of any rains baked the crops this season. Constant downgrades of the crop ratings from the USDA and lowering of the yields drove prices on the Chicago Board of trade to a multiyear high.

Domestic scenario for the soy crop still looks bleak largely attributing weather as a primary factor. The year started from a poor mustard crop as extreme cold temperatures in the north trimmed the yields. At present soya sowing is in progress and is usually completed by end of July in all parts of the growing regions in India. Despite an expected increase in acreage by about 10% this year lack of rains has driven the soya prices from Rs 3400 per quintal to Rs 5000 per quintal. Also came to support was the higher oil meal prices and demand for the same. We must note that palm oil prices haven’t seen much participation compared to soybean. Malaysian palm oil prices have also remained subdued in the recent rally.

Palm oil is the second most traded vegetable oil crop in the world after soy. Traditionally used in manufactured food products, it is now gaining importance as an ingredient in health products, cosmetics etc. Palm oil is the most productive vegetable oil producing nearly 10 times more oil per hectare compared to soybean and there is growing demand for its use in biodiesel and electricity production.

Looking at the global supply and demand scenario, world supply and demand numbers is not a worrying factor as of now. On the supply side, Indonesia and Malaysia account for 90 % of the world palm oil supplies.

Outlook: With such a scenario lined up ahead of us, we hold a bullish stance for crude palm oil in the coming months of the year. As demand is likely to remain robust from the major importers like China, EU and India to meet their domestic needs and at the same time production in Malaysia is expected to see a drop owing to production cycle and stress effect. This would eventually drive palm oil prices higher. Further, the impact of the possible El Nino weather phenomenon would prove to be very costly for the buyers. We expect prices to appreciate by 10-15% in the coming six months