27.09.2018 (The Edge Markets MY) - MUMBAI (Sept 27): Crude palm oil prices are forecast to trend at US$590 per tonne including cost, freight and insurance (CIF Rotterdam) by the end of the year, on the back of firm demand from the biodiesel sector, industry analyst Julian McGill said on Thursday.

"The crude palm oil price, despite pressure from soybean oil, is being supported by free market biodiesel demand," said McGill, head of Southeast Asia at commodities consultancy LMC International. He was speaking to Reuters on the sidelines of the Globoil conference in Mumbai.

"For soybean oil, we think prices will come down to US$700 a tonne CIF Rotterdam by end of the year...Assuming crude oil prices are at US$80 a barrel," he said.

"The (United States-China) trade war has reduced U.S. soybean prices...and the use of 'waivers' to exempt small U.S. refineries from biofuel mandates has cut U.S. biodiesel demand and reduced prices."

Benchmark palm oil prices are currently trading at two-month lows on forecasts of rising production and end-stocks, and had slumped to its weakest levels in three years last week.

It was last down 0.2% at 2,185 ringgit (US$528.29) a tonne at midday break on Thursday.

McGill also added palm oil inventories are expected to rise, largely on good Indonesian production as Malaysian output is seen falling this year on an annual basis.

"Malaysian production will be lower than last year, so the growth is coming from Indonesia," the analyst said. He expects Malaysia to see peak stocks of 2.9 million tonnes by December.

"Indonesian production this year should grow by 4-5 million tonnes from last year."

LMC International's Chairman James Fry had last forecast in August that Malaysian palm oil prices would trade around 2,200 ringgit a tonne until December, but falling stocks would lift prices to 2,400 ringgit by January.

Fry had also forecast that joint output from Indonesia and Malaysia, the two biggest palm producers, would grow over 4 million tonnes in 2018 on strong Indonesian production, as Malaysia's output is expected to decline by 0.2 million tonnes.