01/12/2012 (The Star) - Palm oil prices are set to start 2013 on a sour note as record high stocks and rising output in South-East Asia overwhelm already weak demand, while regulatory uncertainty in top buyers India and China adds to the gloomy outlook.

Analysts and traders at an industry meeting in Bali expect the world's biggest palm oil producers, Indonesia and Malaysia, to boost supplies next year, barring any weather disruptions.

An increase in the amount of edible oil on the global market is likely to further weigh on benchmark Malaysian futures, which are set to post their worst annual performance this year since the 2008 financial crisis.

The profits of big palm oil firms, such as Singapore's Wilmar and Malaysia's Sime Darby, are also likely to be eroded.

While lower prices will attract food demand, appetite could be curbed by possible regulations by China and India. India, the world's biggest buyer, may set higher taxes on edible oil imports to protect oilseed farmers, and China launches strict quality curbs for imports on Jan 1.

“I am steadily coming to the conclusion that the days of supernormal profits in palm oil cultivation are coming to a close,” influential palm oil market analyst Dorab Mistry said.

”Overall I expect vegetable oil prices to remain rangebound in the first half of the year and to begin a major bear market in the second half,” he told the conference.

Mistry, who handles the edible oil trading portfolio for India's Godrej Industries, forecast palm oil to “break down” if India hiked import taxes.

Otherwise, palm oil futures will trade between RM2,300 and RM2,600 between now and February 2013, as high stocks more than make up for strong Asian demand growth, he said.

Other analysts and traders surveyed by Reuters at the meet also saw palm oil prices averaging RM2,500 next year, or 17 % off this year's average of RM3,016.

Palm oil is now trading at above RM2,350, sharply lower than year-ago levels of above RM3,000. - Reuters