Nov. 13 (Bloomberg) -- Palm oil may rise to 4,000 ringgit ($1,277) by the end of the first half next year, the highest since 2008, as output slows in Indonesia and Malaysia and “buoyant” demand, said Dorab Mistry, director of Godrej International Ltd.
Futures in Malaysia may advance to 3,300 ringgit a metric ton in January and “gradually” increase to 4,000 ringgit, Mistry said, keeping a forecast made in July. January-delivery futures closed at 3,135 ringgit a ton on Nov. 11 taking this year’s decline to 17 percent, snapping a two-year gain.
Rising prices may lift world food costs that the United Nations predicts will stay at historically high levels this year, increasing pressure on central banks to raise interest rates. Commodities fell to a 10-month low on Oct. 4 on concern that the deepening European debt crisis may slow global economic growth and curb demand for raw materials.
“With growth in crude palm oil production decelerating and demand remaining buoyant, prices must rise,” said Mistry, who in September correctly predicted the tropical oil would drop to 2,800 ringgit last month. Demand for vegetable oils is expected to grow by 6 million tons in the 2011-2012 marketing year, outpacing global supply, Mistry said in remarks prepared for the China International Oils and Oilseeds conference in Guangzhou today.
Mistry cut his estimates for this year’s palm oil production for Malaysia to 18.8 million tons from 19 million tons and Indonesia’s output to 25.2 million tons from 25.5 million tons.
Global output growth for 2011 may be 5.5 million tons from an earlier forecast of 6 million tons, he said. Production may increase by about 2 million tons in 2012, he said.
“In the last few weeks, the pace of increase has been decelerating, particularly in the case of older tall trees,” he said. “Add to that, the weather in Malaysia and in Indonesia has turned far too wet and this leads to flooding, slower harvesting and other related problems.”
Production typically peaks from July to October and tapers off during the annual rainy season from November onwards. La Nina, a cooling of the Pacific Ocean, can increase rainfall in Malaysia and Indonesia and cause drier weather in Latin America and southern U.S. Forecast models suggest the La Nina event is likely to peak towards the end of 2011, and persist into early 2012, Australia’s Bureau of Meteorology said Nov. 9.
“From November this year, we shall see a drawdown in palm oil stocks,” Mistry said. “It will become a function of price and of spreads to keep stocks in the second half of 2012 at a workable level and to prevent them from falling to a dangerously low level. As stocks decline, the new export tax structure in Indonesia will magnify those changes and create a disproportionate bullish effect on prices.”
Indonesia, the largest palm oil grower, reduced the maximum tax on refined, bleached and deodorized palm olein to 13 percent, from 25 percent, while crude palm oil will be taxed at a maximum of 22.5 percent from 25 percent earlier. The new tax took effect Oct. 1.
China, the world’s biggest user of cooking oils, may import larger amounts of oilseeds, vegetable oils and grains, helped by the stronger yuan, to replenish state reserves, he said.
“China will soon become the world’s largest importer of food,” he said. “Our oilseed complex is important to China and China is even more critical to price behaviour with each passing year. I expect some recovery in soybean imports and crushing in China in 2012.”
U.S. biodiesel production is expected to pick up “strongly” in the second half of 2012 and Brazil and Argentina, the biggest soybean exporters after the U.S., may increase their biodiesel mandates next year, which will be positive for soybean oil prices, Mistry said. Soybean oil futures in Chicago may trade between 65 and 70 cents a pound by June 2012, he said. December-delivery soybean oil was at 50.98 cents on Nov. 11.
The strength in rapeseed oil prices was supported by the strong demand for biodiesel in Europe and the limited supply due to lower crops in 2011, a 2 percent biodiesel mandate in Canada, strong exports to the U.S., and the lower rapeseed crop in China.
“The threat of contagion can scuttle this bullish forecast,” Mistry said. “If equities tank, for any reason, then all commodity prices will also fall and will take vegetable oil, oilseeds and meal down as well.”
--With assistance from William Bi in Beijing. Editors: Richard Dobson, John Chacko
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