23/4/07 (Business Times)  - KARACHI: Crude palm oil (CPO) is expected to trade above RM2,000 per tonne for the rest of the year and if there is any crop failure throughout the world, it can rocket to as high as RM2,600 per tonne.

CPO third month benchmark price for July delivery on the Bursa Malaysia derivatives closed RM71 higher at RM2,231 per tonne on Thursday.

In 2006, CPO prices surged 40 per cent, boosted by biodiesel demand. Palm oil analysts and traders expect the market to rise by another 20 per cent this year.

"The global food production chain is severely stressed or warped by expansion of biofuel industry. The US is planting more corn to make ethanol while reducing oilseeds acreage. Oil for food supply is critical," CIMB Futures Sdn Bhd palm oil manager Loh Kin Kien said.

"I don't think CPO would trade any lower than RM2,000 per tonne for the next six months," he said, adding: "Any significant output reduction due to weather disruption will fuel a super bull in CPO prices."

Asked to estimate how high CPO prices could rally to, he replied: "Although the current economic situation is a lot different from 1999, we're expecting a superspike to RM2,600," Loh said.

The analyst was speaking at the Malaysia-Pakistan Palm Oil Trade Fair and Seminar 2007 held from April 17-19 in Karachi.

Malaysia's end-March palm oil stocks fell 10.6 per cent to 1.34 million tonnes from February.

Cargo surveyor Intertek Testing Services said exports of Malaysian palm oil products for April 1-15 rose 47 per cent to 666,793 tonnes from 454,791 tonnes shipped during March 1-15.

The surveyor's numbers indicate that while April exports jumped almost 30 per cent, production failed to keep pace.

"Development of biofuel demand has created imbalance in markets for fuel, food and feed. Soyabean acreage in the US and China are being switch to maize," LMC International Ltd managing director Dr James Fry said.

Crude oil price volatility and supply uncertainty due to Middle East tensions will only strengthen the US' resolve to expand renewable energy.

In the longer term, the EU's commitment to the Kyoto Protocol on biofuel is steadfast. Following this, vegetable oil prices are expected to go on trading at bullish prices.

Just like Loh, Fry says a CPO price rally to RM2,600 per tonne is possible if crop production for food is hampered by natural calamities.