12/4/07 (Business Times)  - PALM oil continues to trade higher as global supply of edible oils tightens against burgeoning demands to feed the food, oleochemicals and biodiesel industries.



Yesterday, crude palm oil (CPO) for delivery in June, the third-month benchmark contract, rose as high as RM2,205 a tonne on the Malaysia Derivatives Exchange but closed at RM2,188 per tonne.

In a note to investors yesterday, Aseambankers Research said a possible re-rating for the sector in the second half of the year appears to have been fast-tracked by the present short-term tightness in the supply of palm oil.

"Present CPO prices of around RM2,150 per tonne may be sustainable and perhaps even inch higher at the slightest positive news," Aseambankers plantation stock analyst Ong Chee Ting said.

Although he has a neutral call on the sector, Ong plans to upgrade CPO price assumptions of RM1,900 per tonne for 2007 and RM2,000 per tonne for 2008.

Kenanga Investment Bank plantation stock analyst Yin Shao Yang, however, is maintaining his forecast. He said, "CPO price should average at RM1,900 this year and RM2,100 in 2008."

Malaysia exported RM7.73 billion worth of palm oil products in the first quarter of this year, 16 per cent more than the same period in 2006.

When contacted, the Malaysian Palm Oil Council chief executive officer Tan Sri Yusof Basiron said, "buoyant prices are contributing to higher exports. The global demand for palm oil is burgeoning but supply is not keeping up."

In the first three months of this year, Malaysia squeezed out 3.19 million tonnes of CPO, which is 1.4 per cent less than 3.23 million tonnes, the amount posted in the same quarter in 2006.

"Although CPO production dipped a little in the first three months, it is still too early to conclude that Malaysia may not be able to achieve the 16.5 million tonnes output forecast.

"Malaysia received more rainfall than Indonesia last year. Production should pick up later in the year," Kenanga's Yin said.

Malaysian Palm Oil Board's (MPOB) figure show that in the first quarter of this year, China, Netherlands and Pakistan are still the top three buyers of Malaysian palm oil products. China bought 836,473 tonnes, the Netherlands 367,439 tonnes and Pakistan 165,537 tonnes.

"We're very happy with China buying 38 per cent more," Yusof said.

On January 26, India, in its bid to cool rising inflation, reduced import duties on CPO and palm olein to 60 per cent and those on refined, bleached and deodorised palm oil and palm olein to 67.5 per cent.

Many analysts predicted that as a result of these duty cuts, India would buy more palm oil.

MPOB's figures show that in the first quarter of this year, India only bought 73,524 tonnes of palm oil products from Malaysia, 29 per cent less than the 102,934 tonnes it imported in the same quarter in 2006.

"While India bought less from Malaysia, it had actually purchased more CPO from Indonesia. The duty structure benefits CPO more than palm olein," Yusof said.