11/09/2008 (The Financial Express) - Prices of palm oil, the world's most consumed vegetable oil, need to decline further to spur more demand from the biofuel and food sectors as stockpiles swell to records, said Dorab Mistry, director at Godrej International Ltd.

Palm oil would be a viable feedstock for biofuel at 2,200 ringgit a ton ($636), free-on-board, if crude oil stays around $100 a barrel and the dollar stabilizes at the current level, Mistry said on Wednesday at a conference. Prices would have to fall to $550 a tonne should oil fall to $80 a barrel, he said.

Palm oil has fallen 48% from a record on March 4 as expectations for bumper crops and swollen stockpiles have curbed demand. Crude has tumbled 29% from its July peak.

"High prices have over time evoked a supply response," Mistry said. Record high stockpiles in Indonesia and Malaysia, the world's top producers, will weigh on palm oil and "prices have to react and correct," he said.

Production will jump to 18 million metric tonne in Malaysia and 20 million tonne in Indonesia this year as favorable weather aided harvests, he said. Stockpiles in the two countries will exceed 5 million tonne by the end of November, he said.

Increasing output of other vegetable oils, including soybean oil, the main rival, will add to the glut. China is projected to produce a record 18 million to 19 million tonne of soybeans this year, reducing demand from the world's largest buyer, Mistry said. There will be “bumper crops of oilseeds'' around the world after a timely monsoon in India and the latest Hurricane Gustav.

—Bloomberg