Sept. 25 (Bloomberg) -- Palm oil may tumble to as low as 2,800 ringgit ($880) a metric ton in the next five to eight weeks, the lowest level in almost a year, as output jumps in Malaysia and Indonesia, the largest growers, according to Dorab Mistry, director of Godrej International Ltd.
Futures in Malaysia will trade between 2,800 ringgit and 3,100 ringgit a ton until mid-November, Mistry said in remarks prepared for the Globoil conference in Mumbai today. The commodity, which has lost 21 percent this year, last traded at less than 2,800 ringgit in October 2010.
Lower palm oil prices may curb world food prices that the United Nations predicts will stay at historically high levels this year and ease pressure on central banks to raise interest rates. Commodities fell to a nine-month low on Sept. 23 on deepening concern that governments are running out of tools to avert a global recession, eroding demand for raw-materials.
“This is going to be a period of great volatility, first down and then gradually up,” said Mistry, who’s traded the oil used in food and fuels for more than three decades. “You will need strong nerves to trade these markets.”
Futures may recover from December and rally to as high as 4,000 ringgit a ton as consumption rises among developing nations including China and India, he said, maintaining a forecast made first on July 28. The December-delivery contract closed at 2,992 ringgit in Kuala Lumpur on Sept. 23.
Palm oil production in Malaysia will be at a peak this month and in October, expanding stockpiles, Mistry said. Output may gain to 19 million tons this year in Malaysia, while it may total 25.5 million tons in Indonesia, the largest producer, said Mistry, sticking to a forecasts made in July.
In Malaysia, production totaled 12 million tons in the January-August period, 8.2 percent more than a year earlier, while shipments gained 3.8 percent to 11.3 million tons, according to the nation’s palm oil board.
Sime Darby Bhd., the world’s biggest publicly listed palm- oil producer, expects harvests from plantations in Malaysia and Indonesia to climb in the year to June as yields improve, Group Chief Executive Officer Mohd Bakke Salleh said on Sept. 21. Futures may hold at 3,000 ringgit a ton until the yearend because of their “significant discount” to other cooking oils and demand from India ahead of the Diwali festival, he said.
The price may plunge 16 percent to as low as 2,525 ringgit a ton by March if Brent crude oil extends its decline to $87 a barrel, James Fry, chairman of LMC International Ltd. told the conference yesterday. Brent for November delivery fell 1.4 percent to $103.97 a barrel on the London-based ICE Futures Europe exchange on Sept. 23.
A plan by Indonesia to lower the tax on refined palm oil products may boost its exports, swelling inventory in Malaysia, Fry said. That may “depress” prices, he said.
Indonesia will levy a maximum tax of 10 percent on refined, bleached and deodorized palm oil from Oct. 1, while crude palm oil will be taxed at a maximum of 22.5 percent, according to a Finance Ministry Decree signed Aug. 15.
The growth in global vegetable oil supplies will outpace the increase in demand for the first time in three years in 2011, Mistry said. Production will expand by 9 million tons, exceeding the 6.5 million tons growth in demand, he said.
“It is also seen that world stocks will rise significantly,” Mistry said. “This rise in stocks will materialize mainly in the second half of the year. That is when palm oil production will be at its highest and Russian and Ukrainian sunflower seed crush will be strong.”
Palm oil output in Malaysia may remain flat next year or increase marginally after a bumper harvest this year, while production growth in Indonesia will be less than a normal year, Mistry said.
Soybean oil will remain “steady” around $1,200 and $1,250 a ton free-on-board basis for the next several months due to biodiesel mandates in Brazil and Argentina, Mistry said. Still, the loss of export demand for soybean oil from so-called price- sensitive countries will continue given its large premium over palm oil, he said.
Soybean oil futures in Chicago may rally from December as Brazil and Argentina near the end of their crushing season, Mistry said. Prices may gain to 65 cents a pound to 70 cents a pound by April from 52.64 cents on Sept. 23, he said.
“There will be several short periods between now and the middle of 2012 when markets will be extremely volatile,” Mistry said. “So much so that we shall even try to forget the fundamentals and look only at the performance of financial markets and equities.”
--Editors: Thomas Kutty Abraham, Jake Lloyd-Smith
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