08/12/2014 (Borneo Post) - Analysts believe the single key catalyst for palm oil price in 2015 is the weather since food demand growth remains muted and non-mandatory biodiesel usage slows due to a decline in crude oil price.

RHB Research Institute Sdn Bhd (RHB Research) yesterday noted that with only a single potential driver going into 2015, being bullish currently on the sector is a risky proposition.

Nevertheless, the weather is traditionally the single biggest driver of agricultural prices and by itself is sufficient to result in a sustained upswing in prices.

Even if El Nino – currently at ‘alert’ level – fails to materialise, may be unlikely to change sector sentiment. This is because the market has been ignoring the development of El Nino after its earlier failures to develop.

“In any case, damage to 2015 production has already been done by second half calender year 2015 (2HCY14) dryness in Kalimantan, Indonesia,” RHB Research explained.

“We expect a structural slowdown in Indonesia’s production growth in 2017 the latest, but this could materialise sooner due to poor developments of plantation and infrastructure.

“This is a factor to position for in late 2015 even in the absence of adverse weather impacting the sector.”

The weaker crude oil price has wiped out biodiesel margin and could impact non-mandatory usage. Net impact on palm oil demand will probably be muted given the compensatory effect from Indonesia’s significant increase in mandatory biodiesel usage in 2015.

With the year to date average CPO price at RM2,434 per tonne, the research house’s full-year average of RM2,400 remains on track.

“We expect prices to strengthen next year, averaging RM2,500 per tonne.”