28/07/2011 (Bloomberg) - Palm oil may slump to as low as 2,800 ringgit ($952) per metric ton in September as output jumps in Malaysia and Indonesia, the world’s two largest growers, according to Dorab Mistry, director of Godrej International Ltd.

Malaysian output may gain 2 million tons to 19 million tons in 2011, Mistry told a symposium in Sydney today, according to an advance copy of his remarks. Indonesian production may rise 3 million tons to 25.5 million tons, said Mistry. Palm oil, which lost as much as 1.4 percent to 3,085 ringgit in Kuala Lumpur today, last traded at less than 2,800 ringgit in October 2010.

Lower palm oil prices may help cut global food costs that rallied to a record in February, according to a United Nations gauge, and held within 2 percent of that peak in June. Mistry, who’s traded the oil used in food and fuels for more than three decades, forecast a rebound to 4,000 ringgit by April 2012.

“Production this year is increasingly likely to go up and stocks will get built because demand will slow down from September onward,” Sandeep Bajoria, chief executive officer at brokerage Sunvin Group, said by phone from Mumbai.

While palm oil on the Malaysia Derivatives Exchange has lost 22 percent since reaching a 35-month high in February on concern output will expand, prices remain 24 percent higher than a year ago. Crude oil’s 26 percent rally over the past 12 months has lifted the appeal of vegetable oils in biofuels. Mistry’s forecasts were based on crude oil at $85 to $105 per barrel.

Summer Demand
By September, “the peak summer demand will have gone, Indonesian biodiesel production will slow down dramatically and CPO production will rise strongly,” Mistry said according to the remarks, referring to crude palm oil by its initials. Malaysian stockpiles will reach a record in December, he said.

To be sure, prices may then rally next year after the high- production cycle ends in about December, Mistry said. “The level of 4,000 ringgit will take time, possibly not until April 2012,” he said, according to the remarks. Palm oil last traded at 4,000 ringgit in March 2008.

Malaysia’s Sime Darby Bhd. (SIME), the world’s biggest listed producer, expects palm oil may remain at about 3,000 ringgit for the rest of this year on good demand, Franki Anthony, Sime Darby’s plantation managing director, said on July 22.

Mistry’s forecast today for a decline followed by a rebound is similar to his last public call in April, which was issued in Beijing. He said then that prices may fall to less than 3,000 ringgit as output expanded, before rallying in the final quarter.

Record Reserves
“I expect palm stocks on 1st December in Malaysia to be at a record high,” Mistry said in Sydney today, according to the remarks. Reserves in the second-largest producer reached an all- time high of 2.27 million tons in November 2008 and stood at 2.05 million tons last month, according to Bloomberg data.

Global palm oil output will expand at least 6 million tons from last year as Papua New Guinea, Thailand, India and Colombia also see growth, he said. “We have a strong recovery in tree output, plus a strong increase in mature area,” Mistry said.

Mistry’s forecasts for production in Malaysia and Indonesia are higher than official projections. Malaysian output may be 17.6 million tons in 2011, compared with 17 million in 2010, Plantation Industries and Commodities Minister Bernard Dompok said in March. Dompok’s outlook would match output in 2009 and compare with 2008’s record 17.7 million tons, official data show.

Indonesia expects output to rise 5.3 percent to 24.4 million tons in 2011, Gamal Nasir, director general for estate crops at the agriculture ministry, said in December. Production in Indonesia will rise 8.1 percent to 24 million tons in 2011, Hamburg-based researcher Oil World said in a July 19 report.

Living Standards

Global biodiesel demand is expected to grow 3 million tons this year, while demand for food will expand 3.5 million tons driven by rising populations and better living standards in developing countries, according to Mistry. Palm oil competes with soybean oil for use in foods and fuels.

Soybean oil will remain “steady” at $1,250 a ton a free- on-board basis for the next few months due to biodiesel mandates in Brazil and Argentina, Mistry said. Still, the loss of export demand for soybean oil from so-called price-sensitive countries will continue given its large premium over palm oil, he said.

Large stockpiles of soybeans in 2011 from better-than- expected crops in Argentina, Brazil and Paraguay may lead to an increase of almost 12 million tons in the crushing of the oilseed compared with last year, Mistry said. That would help to produce 2 million tons more soybean oil in 2011, he said.

“Soya-oil prices will only rally around December-January as we approach the end of the South American crush season,” Mistry said. “The soya oil premium over palm oil will narrow as a first step before we see any gains in soya oil.”

Soybean oil’s premium over palm oil widened to $211.73 a ton today from $202.62 yesterday. This compares with an average of $140.64 a ton this year, according to Bloomberg data.