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Nov. 17 (Bloomberg) -- Palm oil may climb to 4,000 ringgit ($1,267) by the end of the first half, the highest level since 2008, amid sustained demand and as production slows, said Dorab Mistry, director of Godrej International Ltd.
“Demand is buoyant, demand for biofuels even more buoyant, as you can see from the price of crude oil, and as a result there’s only one way to go and that’s higher,” said Mistry who correctly predicted in September that the tropical oil would decline to 2,800 ringgit a metric ton.
A rally may slow the decline in world food costs, making it harder for central banks to cut interest rates. While the United Nations’ food index fell 9 percent last month from a record in February, the gauge is about 20 percent higher than the five- year average. Palm oil fell to the lowest level in a year in October on concerns that a deepening European debt crisis may slow growth and curb demand for raw materials.
“The market has bottomed out and it will keep going higher until we get to a price situation which begins to ration demand, and I believe that will happen when the price reaches 4,000 ringgit by June,” said Mistry in a Bloomberg Television interview in Singapore, keeping a forecast first made in July.
February-delivery futures advanced as much as 0.8 percent to 3,266 ringgit on the Malaysia Derivatives Exchange today, the highest for the most active contract since June, and ended the morning session at 3,259 ringgit. Futures have declined 14 percent this year, snapping a two-year gain.
Output will drop after trees produced the world’s most consumed edible oil at an “amazing velocity” in the past eight months, said Mistry. “Like every other living organism, the trees are a bit tired, they need a rest, so we are moving from the biological high cycle, into the flat phase of production.”
“Production seems to have turned the corner, growth is decelerating, and for consumers and users of palm oil, they have now got to put their buying shoes on to cover unless they want to pay higher prices a few months down the road,” he said.
At a conference in China on Nov. 13, Mistry cut his estimates for this year’s production in Malaysia to 18.8 million tons from 19 million tons and for Indonesia to 25.2 million tons from 25.5 million. The two countries are the biggest producers.
--With assistance from Chan Tien Hin in Kuala Lumpur. Editors: Ovais Subhani, James Poole
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