MARKET DEVELOPMENT
Palm Prices to Be Capped at 2,300 Rgt if Brent Falls to $85 - Analyst Fry
Palm Prices to Be Capped at 2,300 Rgt if Brent Falls to $85 - Analyst Fry
30/10/2014 (Reuters) - Prices of Malaysian crude palm oil may be capped at 2,300 ringgit ($704) if Brent crude prices fall to $85, leading industry analyst James Fry said on Wednesday.
Palm oil typically moves in sync with crude oil prices due to its rising use as a biofuel. Weaker crude make use of biofuel less attractive for biodiesel producers.
Fry, chairman of commodities consultancy LMC International, in September had forecast crude palm oil (CPO) prices to trade around $2,225 ringgit in February if Brent crude drops to $85 a barrel, or to jump to 2,465 ringgit if prices rise to $95 a barrel.
"The recent strength of CPO prices has taken its EU premium over Brent to $100 and in Southeast Asia to $40, making unsubsidised biodiesel unprofitable," Fry told an industry conference in Kuala Lumpur.
"If Brent settles at $85, 2,300 ringgit is the upside to local prices," he said.
He added that declining Malaysian palm oil stocks will likely support the CPO premium over Brent in the next six months.
Brent crude dipped to as low at $82.60 a barrel earlier this month, and is currently trading around $86.40, hurt by oversupply and demand concerns.
Fry said as crude prices fall, OPEC exporters will likely boost output to maintain revenues, adding more pressure to both Brent and crude palm oil prices.
However, he said export tax policies in the world's top palm growers Indonesia and Malaysia would help reinforce palm oil's competitiveness against Brent crude as a fuel feedstock.
Malaysian palm oil futures on the benchmark Bursa Malaysia Derivatives Exchange climbed to a 12-week high of 2,258 ringgit on Wednesday, recovering nearly 18 percent from its over 5-year low plunge early September.
($1 = 3.2675 Malaysian ringgit)
Palm oil typically moves in sync with crude oil prices due to its rising use as a biofuel. Weaker crude make use of biofuel less attractive for biodiesel producers.
Fry, chairman of commodities consultancy LMC International, in September had forecast crude palm oil (CPO) prices to trade around $2,225 ringgit in February if Brent crude drops to $85 a barrel, or to jump to 2,465 ringgit if prices rise to $95 a barrel.
"The recent strength of CPO prices has taken its EU premium over Brent to $100 and in Southeast Asia to $40, making unsubsidised biodiesel unprofitable," Fry told an industry conference in Kuala Lumpur.
"If Brent settles at $85, 2,300 ringgit is the upside to local prices," he said.
He added that declining Malaysian palm oil stocks will likely support the CPO premium over Brent in the next six months.
Brent crude dipped to as low at $82.60 a barrel earlier this month, and is currently trading around $86.40, hurt by oversupply and demand concerns.
Fry said as crude prices fall, OPEC exporters will likely boost output to maintain revenues, adding more pressure to both Brent and crude palm oil prices.
However, he said export tax policies in the world's top palm growers Indonesia and Malaysia would help reinforce palm oil's competitiveness against Brent crude as a fuel feedstock.
Malaysian palm oil futures on the benchmark Bursa Malaysia Derivatives Exchange climbed to a 12-week high of 2,258 ringgit on Wednesday, recovering nearly 18 percent from its over 5-year low plunge early September.
($1 = 3.2675 Malaysian ringgit)