MARKET DEVELOPMENT
Palm Seen Rising to May by Mistry in ‘Year of Two Halves’
Palm Seen Rising to May by Mistry in ‘Year of Two Halves’
05/3/2015 (Bloomberg) - Palm oil will climb in the next three months because of lower production and shrinking inventories before declining after July, according to Dorab Mistry, director at Godrej International Ltd.
Futures will rally to 2,500 ringgit ($689) a metric ton by May as reserves in Malaysia, the biggest grower after Indonesia, contract to the lowest in at least four years, Mistry said at a conference in Kuala Lumpur on Wednesday. Prices may drop to 2,100 ringgit by December as output recovers, he said.
Palm oil, used in everything from fuel to instant noodles and candy, lost 16 percent in the past year as the collapse in crude oil costs cut the appeal of cooking oils as biofuel and as global supplies of soybeans used to make an alternative oil climbed to a record. In November, Mistry predicted that prices would reach 2,500 ringgit by March as reserves declined.
“This is going to be a year of two halves,” said Mistry, who has traded cooking oils for more than three decades. “Demand will outstrip supply in the first six months and gradually supply will increase in the second half of the year. Until July, world vegetable oil stocks and particularly palm oil stocks will remain very tight,” he said in the address.
Palm oil gained as much as 0.9 percent to 2,400 ringgit a ton on Bursa Malaysia Derivatives, the highest price since July, before closing 0.6 percent lower at 2,365 ringgit in Kuala Lumpur. Futures last traded above 2,500 ringgit in June.
‘Lose Tonnage’
Production in Malaysia entered a biological low cycle in November that will last until June, Mistry said. That coincides with a seasonal drop from December to March, he said. Malaysia lost 765,000 tons of output in the three months through January from a year earlier, and “we are going to continue to lose tonnage at least until June,” he said.
Inventories in Malaysia will keep dropping through June and will probably fall below 1.5 million tons, the lowest since February 2011, while reserves in Indonesia will bottom at about 2.5 million tons in July before rising to 4.65 million tons by December, Mistry said. Malaysian stockpiles were 1.77 million tons in January after contracting for a second month.
Output in Malaysia will be “at best” 19.7 million tons this year, and may even fall short of 19.5 million tons if current dry weather continues, Mistry said. That contrasts with the view of the country’s palm board, which predicts 20.09 million tons in 2015. Production in Indonesia will probably reach 31.5 million tons from 30 million tons, he said.
Global Supply
Global output will rise by less than 2 million tons in the 12 months to September before climbing “strongly” by as much as 4 million tons in the following year, he estimated.
With a 44 percent drop in Brent crude in the past year, discretionary biodiesel use has collapsed and world demand will shrink by about 500,000 tons, he said. Indonesia may at best consume half a million tons more this year, he said. The country more than doubled its biodiesel subsidy to 4,000 rupiah (31 U.S. cents) from 1,500 rupiah in a bid to spur demand.
Mistry’s price forecasts assume Brent trades from $50 to $75 a barrel, a “relatively strong” dollar and reasonable world growth, he said. His target for RBD palm olein is $725 as the ringgit may extend its decline, he said.
“I am happy to say that some relief to palm oil producers is just round the corner,” Mistry said. “Six months down the road, producers will once again face challenges and will need to focus on cost control and innovation.”
Futures will rally to 2,500 ringgit ($689) a metric ton by May as reserves in Malaysia, the biggest grower after Indonesia, contract to the lowest in at least four years, Mistry said at a conference in Kuala Lumpur on Wednesday. Prices may drop to 2,100 ringgit by December as output recovers, he said.
Palm oil, used in everything from fuel to instant noodles and candy, lost 16 percent in the past year as the collapse in crude oil costs cut the appeal of cooking oils as biofuel and as global supplies of soybeans used to make an alternative oil climbed to a record. In November, Mistry predicted that prices would reach 2,500 ringgit by March as reserves declined.
“This is going to be a year of two halves,” said Mistry, who has traded cooking oils for more than three decades. “Demand will outstrip supply in the first six months and gradually supply will increase in the second half of the year. Until July, world vegetable oil stocks and particularly palm oil stocks will remain very tight,” he said in the address.
Palm oil gained as much as 0.9 percent to 2,400 ringgit a ton on Bursa Malaysia Derivatives, the highest price since July, before closing 0.6 percent lower at 2,365 ringgit in Kuala Lumpur. Futures last traded above 2,500 ringgit in June.
‘Lose Tonnage’
Production in Malaysia entered a biological low cycle in November that will last until June, Mistry said. That coincides with a seasonal drop from December to March, he said. Malaysia lost 765,000 tons of output in the three months through January from a year earlier, and “we are going to continue to lose tonnage at least until June,” he said.
Inventories in Malaysia will keep dropping through June and will probably fall below 1.5 million tons, the lowest since February 2011, while reserves in Indonesia will bottom at about 2.5 million tons in July before rising to 4.65 million tons by December, Mistry said. Malaysian stockpiles were 1.77 million tons in January after contracting for a second month.
Output in Malaysia will be “at best” 19.7 million tons this year, and may even fall short of 19.5 million tons if current dry weather continues, Mistry said. That contrasts with the view of the country’s palm board, which predicts 20.09 million tons in 2015. Production in Indonesia will probably reach 31.5 million tons from 30 million tons, he said.
Global Supply
Global output will rise by less than 2 million tons in the 12 months to September before climbing “strongly” by as much as 4 million tons in the following year, he estimated.
With a 44 percent drop in Brent crude in the past year, discretionary biodiesel use has collapsed and world demand will shrink by about 500,000 tons, he said. Indonesia may at best consume half a million tons more this year, he said. The country more than doubled its biodiesel subsidy to 4,000 rupiah (31 U.S. cents) from 1,500 rupiah in a bid to spur demand.
Mistry’s price forecasts assume Brent trades from $50 to $75 a barrel, a “relatively strong” dollar and reasonable world growth, he said. His target for RBD palm olein is $725 as the ringgit may extend its decline, he said.
“I am happy to say that some relief to palm oil producers is just round the corner,” Mistry said. “Six months down the road, producers will once again face challenges and will need to focus on cost control and innovation.”