Palm oil may extend a decline from its lowest level in seven months as a drop in crude oil prices reduces the appeal of the tropical oil for use in biofuels, according to LMC International Ltd.
Futures on the Malaysian Derivatives Exchange may retreat to as low as 2,450 ringgit ($770) a metric ton in the fourth quarter if the Brent crude oil falls to $80 a barrel, LMC Chairman James Fry told a conference in Mumbai. Prices may decline to 2,700 ringgit during July and September, he said.
Fry joins Godrej International Director Dorab Mistry in predicting a decline in palm oil prices, which have slumped 19 percent since reaching a 13-month high in April as the deepening European debt crisis and a slowdown in China reduces demand. Prices may tumble to 2,700 ringgit in the absence of fresh stimulus by the U.S. to revive growth, Dorab Mistry, director at Godrej International Ltd., said yesterday.
“The basic supply-demand data on petroleum imply that today’s high prices are unjustified and are doing their job of boosting supply and slowing demand,” Fry said. “For that reason, I expect Brent prices to fall further. The market is looking ahead to the time when crude palm oil output picks up for seasonal reasons, while demand weakens because of the new recession.”
Palm oil may trade between 2,800 ringgit a ton and 2,900 ringgit in the second half of 2012 if crude oil traded at about $95 a barrel, he said. The August-delivery contract on the Malaysia Derivatives Exchange fell as much as 1.8 percent to 2,922 ringgit a ton today, matching the lowest intraday level for the most-active contract reached on Nov. 2. Brent crude oil prices have declined 8.3 percent this year.
Palm oil refining capacity in Indonesia, the largest producer, may exceed 40 million tons within the next two years as a cut in export taxes last year fuel investments, Fry said.
Indonesia reduced taxes in October to boost exports of processed oil. Malaysia, the second-largest grower, will take steps to help local refiners stay competitive against Indonesian suppliers, Minister of Plantation Industries & Commodities Bernard Dompok said in Mumbai yesterday.
A decline in world food prices may help India to boost the base import rates on refined edible oils to check a surge in processed oil imports, Fry said.
India is considering raising the benchmark import price, unchanged since 2006, to protect refiners, a government official said May 28. Refined oils are taxed at 7.5 percent, while there’s no tax on crude oils.
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