28/09/2009 (Bloomberg) — Palm oil, the world’s most consumed vegetable oil, must drop to 2,200 ringgit ($642) a metric ton for demand to rebound amid a near-record stockpile, said Dorab Mistry, director at Godrej International Ltd.

Vegetable oils made from soybeans, corn, rapeseeds and oil palms, used mostly in food, are increasingly being used to make alternative fuels to reduce the cost of fossil energy. Crude oil rose 2.2 percent last week to $106.89 a barrel in New York.

“Palm prices have to reach that magical market clearing level where new additional demand kicks in,” Mistry said today at a conference in Mumbai. The price forecast is based on crude oil staying within a 10 percent band of $100 a barrel, he said.

Palm oil fell to a 17-month low earlier this month as supplies from Malaysia and Indonesia, the biggest producers, exceeded demand for food, and as a slide in crude oil from a record lowered the attraction of vegetable oils as biofuels. Stockpiles of palm oil may top 5 million tons by the end of November as demand slows, Mistry said.

Indonesia may produce more than 19 million tons of palm oil this year and Malaysia more than 17.4 million tons, both records, Mistry said Sept. 10. Malaysia’s stockpiles were 1.85 million tons at the end of August, the sixth highest on record.

Rising output of other vegetable oils, including soybean oil, the main rival, will add to the glut. Vegetable oils supplies may exceed demand by 300,000 tons in the year to Sept. 30, 2009, due to higher canola and sunflower production, said Mistry, who has traded edible oils since 1976.

Supplies Increase

“High prices brought on the requisite response from farmers in the form of higher production,” Thomas Mielke, chief editor of OilWorld, a trade publication, told the conference yesterday.

Supplies of 17 oils and fats may rise 4.3 percent to 166.41 million tons in the year to September 2009, he said. Demand may climb 4.6 percent to 165.96 million tons. Stockpiles at the end of September next year will probably be little changed at 17.48 million tons, from this year’s 17.24 million tons, Mielke said.

“It’s rather balanced,” he said. “There’s no scope for production declines, or disappearances caused by drought.”

The slump in palm oil prices prompted Indonesia to consider mandating use of the cooking oil to make biofuels and Malaysia to boost exports and local demand to support prices. Exports from Malaysia rose 6.6 percent in August from July, independent cargo surveyor Societe Generale de Surveillance said Sept. 2.

Biofuel producers may use an additional 2.5 million tons and the food sector may consume an extra 4 million tons if the price stays at 2,200 ringgit, said Mistry.

Growth Slowing

“Economic growth is slowing down in all the big population countries,” Mistry said. “In 2007-08, despite high prices, we saw some growth in demand because their economies were growing strongly. In 2008-09, this will not be the case. We shall need lower prices to obtain expansion in demand.”

Not all traders are backing Mistry’s price outlook.

Palm oil prices have “bottomed” and will be supported by falling exports of soybean oil and rising demand for biodiesel, Mielke said.

“The use of soybean oil for biofuels will rise in the U.S., Brazil and Argentina, which means their supplies of soybean oil to the world market will fall” by as much as 3.8 million tons, he said. Palm oil can fill this gap, he said.

Global palm oil production will increase 5.7 percent to 44.7 million tons in the year to September 2009, lagging behind a 7.3 percent gain in consumption, said Mielke.

December-delivery palm oil rose 1.5 percent to 2,313 ringgit a metric ton on the Malaysia Derivatives Exchange on Sept. 26.