23/05/2011 (Bloomberg) - The price of palm oil may decline as much as 30 percent this year as supply increases, putting pressure on producers including Golden Agri Resources Ltd., the Royal Bank of Scotland Group Plc (RBS) said in a report.

The oil is likely to reach 2,500 ringgit ($821) a metric ton by the end of this year with the market being in excess surplus from July, RBS analyst John Rachmat said in the report dated May 18. Crude palm oil futures reached a 35-month high of 3,967 ringgit a ton on Feb. 10 as rains in Indonesia and Malaysia, the top two growing regions, cut yields. Prices fell 0.5 percent to 3,372 ringgit today as inventories climbed to the highest level in six months in April.

Global output may increase 8.3 percent to about 13 million tons in the three months from July, compared with the previous quarter, because of improved weather, and consumption will stay flat, Rachmat said. Demand from biofuel makers, which account for about 10 percent of purchases, is slowing as governments cut subsidies for non-gasoline fuels, he said.

“With looming excess supply on the horizon, and the likely draining of speculative positions in the commodity’s financial derivatives, we recommend investors underweight the sector,” Rachmat said.

He initiated coverage of Golden Agri, the world’s second- largest palm planter, with a “sell” rating. Golden Agri shares have had a 93 percent correlation with the palm oil price since they listed in 1997. Its shares declined as much as 2.8 percent to $0.685 in Singapore as of 12:02 p.m.

RBS also initiated coverage on PT Astra Agro Lestari, Indonesia’s biggest listed plantation by market value, and Indofood Agri Resources Ltd. (IFAR), the palm-oil unit of Indonesia’s biggest noodle maker, with “sell” ratings.