09/11/2008 (iStockAnalyst) - VEGETABLE oils forecast expert Thomas Mielke believes palm oil prices have bottomed out and expects sharp increases ahead.

Eight months ago, palm oil futures soared to its all time high of RM4,486 per tonne but have since fallen. Two weeks ago, it closed as low as RM1,390 per tonne, 70 per cent off its record. Last Friday, the third month benchmark palm oil futures on Bursa Malaysia Derivatives Market closed at RM1,609 per tonne.

"I believe prices have reached the floor two weeks ago and the market is now in transition," Mielke told a forum of more than 100 palm oil traders in Petaling Jaya over the weekend.

He said palm oil demand is strong but was recently not reflected in Malaysia and Indonesia's palm oil exports because some buyers in India and China find it hard to borrow money from the banks.

The current global financial crisis which started in the US and spread to Europe, South Korea, Japan and Singapore, has prompted many banks to be more selective in extending letter of credits to vegetable oil buyers.

"The recent hand-to-mouth buying was caused by difficult access to bank financing. The pipelines have dried up and demand is mounting," Mielke, who is Oil World's editor-in-chief, said.

The Oil World trade journal, published since 1958, is widely subscribed by vegetable oil traders in more than 100 countries. Mielke's opinion, backed by import and export statistics collected from vegetable oil consuming and producing countries, is highly sought after.

Mielke said "it is just a matter of time" before there will be sharp increases in palm oil prices because the current low prices have started to stimulate global demand for food, oleochemicals and fuel.

"Several governments, including Malaysia and Indonesia, have initiated accelerated biodiesel usage via flexible mandates," he added.

In justifying upward trend in palm oil prices, Mielke cited statistics indicating less plantings of soya bean in favour of corn for ethanol in the US and more replantings of oil palm trees in Malaysia and Indonesia.

These lead to little or no growth in next year's global output of vegetable oils but sustained demand, hence providing support to pricing.