26/08/2008 (The Edge Daily), Kuala Lumpur - The price of crude palm oil (CPO) must decline to RM2,200 a tonne in the next few weeks for demand to rebound, said Dorab Mistry, director at Godrej International Ltd.

"At present the market is a deadly cocktail of rising supply-and-demand distortion. Although the markets are oversold, we would see a bounce due to ideal weather (in major agricultural crop-producing regions). At that level (RM2,200), we should see strong demand growth," Mistry said at the Second International Palm Oil Trade Fair & Seminar 2008 here yesterday.

As CPO is a feedstock for biodiesel, its prices have been tracking the price of crude oil, against which it competes.

Oil was trading at US$115.42 (RM390.12) a barrel on the New York Mercantile Exchange at 5.40pm yesterday, while the benchmark CPO contract for October delivery was trading at RM2,590 a tonne, down RM136, on Bursa Malaysia Derivatives.

Mistry also said his forecast of CPO prices reaching RM4,500 a tonne by February next year has been scrapped as the commodity continues to dip after soaring to more than RM4,400 a tonne.

"I must confess that my medium forecast was overly optimistic, I got the market wrong," said the director of Godrej International Ltd.

Although high output has depressed palm oil prices in the last few months, Mistry said it was the sell-off in Chinese vegetable oil markets due to better rapeseed and soybean crops that sparked the downward spiral in palm oil prices.

China's rapeseed crop in 2008 rose about three million tonnes to an estimated 11 million tonnes, data has shown.

"This explains why the domestic market in China is oversupplied and suffering from indigestion. The soybean crop in China is also better than expected and with good weather, should be in an excess of 18 million tonnes," said Mistry, who handles vegetable oil buying and trading for Godrej.

However, he said the bull run in palm oil was not over. He forecasts that CPO prices could trade beyond record levels over the next five years, fuelled by growing populations and biodiesel mandates.

Mistry also said that the high production cycle of CPO could extend to October and November due to ideal weather conditions.

"There could be a late peak in palm oil production this year. Should that happen, my estimate of Malaysia’s palm oil production could exceed 17.4 million tonnes for 2008 as the high prices of CPO have enabled planters to use more fertilisers on their palms," he said, adding that Indonesia's output would rise beyond 19 million tonnes.