MARKET DEVELOPMENT
Palm Oil to Hit New 5-1/2 Year Low at 1,900 Ringgit-Analyst Mistry
Palm Oil to Hit New 5-1/2 Year Low at 1,900 Ringgit-Analyst Mistry
29/09/2014 (Reuters) - Palm oil prices are likely to fall nearly 13 percent to hit a new 5-1/2-year low of 1,900 ringgit ($583.36) per tonne on higher output and sluggish demand, but losses could be restricted to 2,000 ringgit if the Malaysian currency depreciates sharply, leading analyst Dorab Mistry said.
Malaysian palm oil futures settled at 2,177 ringgit ($668.40) per tonne on Friday, after hitting a 5-1/2-year low at 1,914 ringgit on Sept. 2.
"Palm oil today is less competitive than it was last year as well as in June this year. Its discount to soya oil FOB (free-on-board) Argentina and to sun oil FOB Black Sea has been narrowing," Mistry said in his presentation at the Globoil India conference on Sunday.
"At this current price structure demand will gravitate towards soft oils and away from palm. We must remember we are almost into the winter season in the northern hemisphere, which is the main market for palm oil."
Demand for the tropical oil usually slows in winter because it clouds in lower temperatures.
"If the US dollar gets too strong and the ringgit weakens too much, it is conceivable that the local CPO price will be 2,000 ringgits, with an exchange rate of 3.4 to 3.5 ringgits to the dollar," he said.
The ringgit settled at 3.2575 against the dollar on Friday.
Mistry, who heads the vegetable oil trading arm at India's Godrej Industries, said his price forecast for crude palm oil was made assuming that Brent crude would trade in a range of $95-$110 per barrel. Energy prices are critical in determining bio-diesel demand.
Brent is now around $97 per barrel after hitting a two-year low of $95.60 last week.
Mistry also said palm oil stockpiles would keep rising, and could peak in December, due to higher production in the top two producing countries, Indonesia and Malaysia.
The higher output cycle in Malaysia, the world's second-biggest palm oil producer, has been intact and its output could reach 19.8 million to 20 million tonnes in 2014. Top producer Indonesia's output could exceed 30.5 million tonnes, he said.
"A bottom can be picked only after we have a better idea of October production and of Brazilian weather," he said.
Farmers in Brazil and Argentina are likely to switch to soybeans from corn this year, he said. "If weather and rainfall in Brazil and subsequently in Argentina are normal, we could see new lows in soybean prices around January 2015," Mistry said.
U.S. soybeans notched a fresh four-year low on Friday amid ideal weather conditions for record harvests in the Midwestern crop belt, while new highs in the dollar made the supplies less competitive in global markets.
Most-active CBOT November soybeans eased 1.3 percent, or 12-1/2 cents, to $9.10-1/4 per bushel, the lowest level since February of 2010 on a continuous chart.
Edible oil imports by India, the world's biggest buyer, are expected to rise by about 500,000 tonnes to 12.1 million tonnes in 2014/15 year starting from November, Mistry said. (1 US dollar = 3.2570 Malaysian ringgit)
Malaysian palm oil futures settled at 2,177 ringgit ($668.40) per tonne on Friday, after hitting a 5-1/2-year low at 1,914 ringgit on Sept. 2.
"Palm oil today is less competitive than it was last year as well as in June this year. Its discount to soya oil FOB (free-on-board) Argentina and to sun oil FOB Black Sea has been narrowing," Mistry said in his presentation at the Globoil India conference on Sunday.
"At this current price structure demand will gravitate towards soft oils and away from palm. We must remember we are almost into the winter season in the northern hemisphere, which is the main market for palm oil."
Demand for the tropical oil usually slows in winter because it clouds in lower temperatures.
"If the US dollar gets too strong and the ringgit weakens too much, it is conceivable that the local CPO price will be 2,000 ringgits, with an exchange rate of 3.4 to 3.5 ringgits to the dollar," he said.
The ringgit settled at 3.2575 against the dollar on Friday.
Mistry, who heads the vegetable oil trading arm at India's Godrej Industries, said his price forecast for crude palm oil was made assuming that Brent crude would trade in a range of $95-$110 per barrel. Energy prices are critical in determining bio-diesel demand.
Brent is now around $97 per barrel after hitting a two-year low of $95.60 last week.
Mistry also said palm oil stockpiles would keep rising, and could peak in December, due to higher production in the top two producing countries, Indonesia and Malaysia.
The higher output cycle in Malaysia, the world's second-biggest palm oil producer, has been intact and its output could reach 19.8 million to 20 million tonnes in 2014. Top producer Indonesia's output could exceed 30.5 million tonnes, he said.
"A bottom can be picked only after we have a better idea of October production and of Brazilian weather," he said.
Farmers in Brazil and Argentina are likely to switch to soybeans from corn this year, he said. "If weather and rainfall in Brazil and subsequently in Argentina are normal, we could see new lows in soybean prices around January 2015," Mistry said.
U.S. soybeans notched a fresh four-year low on Friday amid ideal weather conditions for record harvests in the Midwestern crop belt, while new highs in the dollar made the supplies less competitive in global markets.
Most-active CBOT November soybeans eased 1.3 percent, or 12-1/2 cents, to $9.10-1/4 per bushel, the lowest level since February of 2010 on a continuous chart.
Edible oil imports by India, the world's biggest buyer, are expected to rise by about 500,000 tonnes to 12.1 million tonnes in 2014/15 year starting from November, Mistry said. (1 US dollar = 3.2570 Malaysian ringgit)