18/11/2010 (Today Online), Singapore - Palm-oil prices look set to hit about RM3,600 ($1,503) a tonne by next year, fuelled by supply shortages and robust demand from emerging markets, according to analysts.

Crude palm-oil (CPO) futures in Malaysia have breached levels not seen in more than two years, with the January-delivery contracts trading at about RM3,396 last Thursday. Since then, prices have eased. On Tuesday, they closed at RM3,270.

Analysts attribute the recent softening in prices to speculation of another round of monetary-tightening measures by China. The sell-off in CPO futures may be temporary, they say.

According to Bloomberg data, prices have risen by about 29 per cent since early September. Experts said this is due to a supply shortage caused by high rainfall in Malaysia, the world's second-largest palm-oil producer.

Share prices of palm-oil sellers such as Golden Agri and First Resources will stand to benefit from higher CPO prices, said analysts, but processing companies such as Wilmar and Indofood Agri may suffer as they are mass purchasers of CPO.

Kim Eng Research warns investors against taking overly enthusiastic positions in companies that are net sellers of CPO. "Ultimately, supply shortfalls mean there is less inventory for them to sell," it said.

In the short-term, prices look set to hover around RM3,000 levels. "There is no indication that the weather will ease up," said Kim Eng Research analyst Rohan Suppiah, .

Record price levels look likely next year. That may hurt refineries, said Mr Leon Perera, an agri-food specialist at Spire Research and Consulting, because CPO prices "are already a large component of their cost structure".

But refiners who also make consumer products from CPO will find it easier to pass on their increased costs. "We do not take a view on prices," said Mr Rajesh Chopra, chief financial officer of Malaysia's Mewah Group, which refines palm oil but also sells cooking oil and bakery fats. "Our strategy is to pass the costs immediately to the customer."

China and India will continue to stoke demand for crude palm oil. But additional moves by China to control inflation may pose a risk to CPO prices.