04/12/2009 (Bloomberg) - Palm oil prices may climb 20 percent in the first half of next year as drought disrupts cooking oil supplies and demand expands in China and India, the biggest consumers, according to analysts.

Prices may soar to 3,000 ringgit ($887) a metric ton by March from 2,493 ringgit now, said Dorab Mistry, director of Godrej International Ltd., one of the biggest edible oil suppliers to India, at a conference in Bali today. He previously predicted prices would reach 3,000 ringgit by the end of 2010.

Palm oil, used in cooking and as an alternative fuel, advanced 47 percent this year as crude oil gained 71 percent and investors bought commodities as a haven from a declining dollar. Vegetable oils climbed about 20 percent in November from a year earlier, the first gain this year, according to the UN Food & Agriculture Organization’s Food Price Index. The gauge rose to a record last year after concerns over food shortages spurred exporters to curb shipments, sparking riots from Egypt to Haiti.

“We must fear for crude palm oil production in 2010,” Mistry said. “I expect palm oil prices to rise at the fastest pace in relation to all other vegetable oils. The spread between soybean oil and palm oil will undoubtedly narrow.”

The premium for cash Argentine soybean oil over Indonesian palm oil will narrow to $50 a ton by April next year, from about $150 now, he said.

‘Pessimistic’ on Output
Output in Malaysia, the second-largest producer, may drop to 17.5 million tons this year from last year’s record 17.7 million tons, Mistry said. Tree stress and dry weather from the developing El Nino has created a “pessimistic outlook” for output in the second half of 2010, he said.

Ocean temperatures in the Pacific are “increasingly consistent with past El Nino events,” the Australian Bureau of Meteorology said on Nov. 25. These conditions will persist into the first quarter of 2010, the bureau said.

India imported a record 8.7 million tons of vegetable oils in the year ended Oct. 30, the Solvent Extractors Association said Nov. 16. Palm oil accounted for 80 percent.

China’s soybean imports in December may exceed the June record of 4.71 million tons, the China National Grain & Oils Information Center said in a statement today. Chinese soybean purchases in the 12 months to July may exceed a previous forecast of 41 million tons, Thomas Mielke, chief executive of Oil World, said in Bali yesterday.

Palm oil for February delivery on the Malaysia Derivatives Exchange gained 0.6 percent to 2,493 ringgit a ton at the 12:30 p.m. trading break in Kuala Lumpur. Prices may reach 2,950 ringgit by June if crude oil trades at $75 a barrel, James Fry, managing director of LMC International Ltd., said in Bali today.

‘Leading Role’
“Palm oil seems to be reinforcing its leading role as the main player in the world vegetable oil market, doing much more than others to determine prices,” Fry said. “There is a feedback on prices from crude oil.”

The commodity will be supported early next year by lower- than-expected soybean supply before coming under pressure as the South American harvest gets under way from March, Mielke said.

“January-February soybean supplies are tight as stocks are still low,” he said yesterday.

Palm oil, which makes up two-fifths of world edible oils output, will be crucial for plugging supply gaps, and more El Nino disruptions could result in price shocks, Mistry said.

“If prices rise too high too soon, that may cause demand rationing,” said Ben Santoso, a plantation analyst at DBS Vickers Securities (Singapore) Pte., in an interview in Bali.

Indonesian Production
Indonesia may produce a record 21.5 million tons next year, from 20.5 million tons this year, boosting exports to all-time highs, Fadhil Hasan, executive director of the Indonesian Palm Oil Association, said Nov. 20. The body represents planters.

Price gains may be limited if stockpiles remain high, Fry said. Palm oil stockpiles in Malaysia expanded 25 percent to a 10-month high of 1.97 million tons in October as production reached a monthly record of 1.99 million tons, the Malaysian Palm Oil Board said on Nov. 10.

If stockpiles, which typically drop in the first half as seasonal production declines, stay at about 1.7 million tons, prices may fall below current levels, Fry said.