MARKET DEVELOPMENT
Palm Oil Price Rally May Slow - For Now
Palm Oil Price Rally May Slow - For Now
31/10/2013 (AgriMoney.com) - The rally in palm oil futures might not have too much further to go for now, said an analyst who forecast a late-year recovery in prices – as has taken place, lifting values on Wednesday to an eight-month top.
Standard Chartered analyst Abah Ofon - who in mid-July, shortly before a slump in futures reached its bottom, forecast a revival ahead – said that he was now "neutral" on prices, after their recovery this month.
"I do not expect to see prices shoot higher," in the short term, Mr Ofon told Agrimoney.com.
'Still a good supply'
While the palm oil balance sheet was looking tighter, thanks both to waning ideas of production and resilient demand, "there is a still a good supply in the market.
"It is not as tight as we saw 18 months back," when Kuala Lumpur futures were approaching a peak of 3,628 ringgit a tonne.
However, he said he was "neutral to bullish" on futures late in 2013 and heading into 2014, with prices set to be supported by Chinese buying ahead of the lunar year at a time when output from Indonesia and Malaysia, the top two producing countries, is seeing a seasonal decline.
Separately, Singapore-based OCBC Investment Research said that the palm oil rally, which on Wednesday took benchmark January futures to an eight-month high of 2,573 ringgit a tonne, had left the market looking "a little bit overbought".
Production threat
Mr Ofon in July – as palm oil futures were approaching a nadir of 2,317 ringgit a tonne, the lowest in nearly four years - forecast a revival to average 2,450 ringgit a tonne in the current quarter.
Speaking from Malaysia, he confirmed the storms which have fuelled the latest price rises, which has lifted Kuala Lumpur prices by nearly 10% this month.
Besides hampering the harvest, rains also lower the levels of oil gleaned from palm fruit.
"Furthermore, lower production is expected with the subsiding of the current high production cycle nearing to the year end," Singapore broker Phillip Futures said.
EU imports soar
Meanwhile, ideas on demand have gained a boost from the impact of European Union duties on imports of biodiesel from Argentina and Indonesia, leaving a void to be filled by the bloc's own biofuels groups, which use palm oil as one of their main feedstocks.
The EU has imported 494,000 tonnes of biodiesel from Argentina so far this year, down from 1.27m tonnes tons in the first 10 months of 2012, according to Oil World.
"The steep decline in arrivals of biodiesel has triggered a recovery in EU biodiesel production, thus raising feedstock requirements, primarily of palm oil and rapeseed oil," the analysis group said
EU imports of palm oil for industrial uses such as making biodiesel were, at 2.45m tonnes in the first seven months of 2013, up 63% year on year, reaching a record 650,000 tonnes to Spain in the January-to-August period.
'Possible trend reversal'
Indeed, some analysts were less downbeat on palm oil price prospects, with Philip Futures suggesting that the break through the psychologically important level of 2,500 ringgit a tonne may herald further gains.
"We believe that the current upward momentum is strong enough to boost for a breakthrough at the 2,500 ringgit-a-tonne resistance level, thereby suggesting a possible trend reversal, from bearish to bullish, to take place," Chee Tat at Phillip Futures said.
Technically, "we continue to see a good degree of separation between the short term and long term moving averages, which may suggest that the current uptrend is stable and sustainable".
'Quite promising'
Last week, plantations group Sipef said that the outlook for palm oil prices into 2014 was "very positive", given the prospect of tighter suppies.
"Current production numbers in palm oil and better-than-expected demand will reflect a stocks carry out number by the end of this year that will be significantly lower than last year," Sipef said.
"In December 2012, 2.6m tonnes of palm oil were carried over in Malaysia, but this year 2m tonnes seems out of reach."
And while the potential for a huge US soybean crop may weigh on the oilseeds complex, "it is expected that the discount of palm oil versus liquid oils will narrow by the end of the fourth quarter.
"The outlook for palm prices in 2014 considering the total vegoil complex is looking quite promising."
Standard Chartered analyst Abah Ofon - who in mid-July, shortly before a slump in futures reached its bottom, forecast a revival ahead – said that he was now "neutral" on prices, after their recovery this month.
"I do not expect to see prices shoot higher," in the short term, Mr Ofon told Agrimoney.com.
'Still a good supply'
While the palm oil balance sheet was looking tighter, thanks both to waning ideas of production and resilient demand, "there is a still a good supply in the market.
"It is not as tight as we saw 18 months back," when Kuala Lumpur futures were approaching a peak of 3,628 ringgit a tonne.
However, he said he was "neutral to bullish" on futures late in 2013 and heading into 2014, with prices set to be supported by Chinese buying ahead of the lunar year at a time when output from Indonesia and Malaysia, the top two producing countries, is seeing a seasonal decline.
Separately, Singapore-based OCBC Investment Research said that the palm oil rally, which on Wednesday took benchmark January futures to an eight-month high of 2,573 ringgit a tonne, had left the market looking "a little bit overbought".
Production threat
Mr Ofon in July – as palm oil futures were approaching a nadir of 2,317 ringgit a tonne, the lowest in nearly four years - forecast a revival to average 2,450 ringgit a tonne in the current quarter.
Speaking from Malaysia, he confirmed the storms which have fuelled the latest price rises, which has lifted Kuala Lumpur prices by nearly 10% this month.
Besides hampering the harvest, rains also lower the levels of oil gleaned from palm fruit.
"Furthermore, lower production is expected with the subsiding of the current high production cycle nearing to the year end," Singapore broker Phillip Futures said.
EU imports soar
Meanwhile, ideas on demand have gained a boost from the impact of European Union duties on imports of biodiesel from Argentina and Indonesia, leaving a void to be filled by the bloc's own biofuels groups, which use palm oil as one of their main feedstocks.
The EU has imported 494,000 tonnes of biodiesel from Argentina so far this year, down from 1.27m tonnes tons in the first 10 months of 2012, according to Oil World.
"The steep decline in arrivals of biodiesel has triggered a recovery in EU biodiesel production, thus raising feedstock requirements, primarily of palm oil and rapeseed oil," the analysis group said
EU imports of palm oil for industrial uses such as making biodiesel were, at 2.45m tonnes in the first seven months of 2013, up 63% year on year, reaching a record 650,000 tonnes to Spain in the January-to-August period.
'Possible trend reversal'
Indeed, some analysts were less downbeat on palm oil price prospects, with Philip Futures suggesting that the break through the psychologically important level of 2,500 ringgit a tonne may herald further gains.
"We believe that the current upward momentum is strong enough to boost for a breakthrough at the 2,500 ringgit-a-tonne resistance level, thereby suggesting a possible trend reversal, from bearish to bullish, to take place," Chee Tat at Phillip Futures said.
Technically, "we continue to see a good degree of separation between the short term and long term moving averages, which may suggest that the current uptrend is stable and sustainable".
'Quite promising'
Last week, plantations group Sipef said that the outlook for palm oil prices into 2014 was "very positive", given the prospect of tighter suppies.
"Current production numbers in palm oil and better-than-expected demand will reflect a stocks carry out number by the end of this year that will be significantly lower than last year," Sipef said.
"In December 2012, 2.6m tonnes of palm oil were carried over in Malaysia, but this year 2m tonnes seems out of reach."
And while the potential for a huge US soybean crop may weigh on the oilseeds complex, "it is expected that the discount of palm oil versus liquid oils will narrow by the end of the fourth quarter.
"The outlook for palm prices in 2014 considering the total vegoil complex is looking quite promising."