Palm, the most-used cooking oil, is set to decline to a three-year low in the next six weeks as reserves climb and crude oil drops amid a global slowdown, said Dorab Mistry, director at Godrej International Ltd. Prices fell.
Futures in Malaysia, the global benchmark, may decline to 2,200 ringgit ($719) a metric ton, the lowest level for a most- active contract since November 2009, Mistry told a conference today. He correctly forecast a slump in July. Inventories in Malaysia, the second-largest producer, will reach or exceed a record 3 million tons on Jan. 1, he said, restating a prediction.
Palm oil, used in foods and biofuels, has tumbled since the end of August as import demand slowed in China and the European Union while reserves surged to a record. Tax changes announced by Malaysia last week won’t clear record stockpiles, according to Mistry, who’s worked in the industry for 35 years. The government should immediately abolish all export quotas and taxes to boost competitiveness and spur higher demand, he said.
“With zero export duty, palm exports will expand,” Mistry said in Kuala Lumpur. “Prices must enable energy demand to kick in and for vast tonnages to be shipped out. In the New Year, we could look at higher prices.”
The contract for January delivery, which has the largest volume and open interest, dropped 0.2 percent to end at 2,466 ringgit a ton on the Malaysia Derivatives Exchange after overturning a gain of as much as 2.1 percent. Most-active futures, which have declined 23 percent this year, touched a three-year low of 2,230 ringgit on Oct. 3.
Lower prices will help to cut global food costs while hurting profits and revenues at growers such as Kuala Lumpur Kepong Bhd. (KLK) The United Nations’ Food & Agriculture Organization’s World Food Price Index advanced 1.4 percent last month, taking gains this year to 2.4 percent.
An export push by companies in Malaysia and Indonesia led to “full pipelines in all destination markets,” including India, he said. “Ask any export shipper in Malaysia and he will confirm the turnaround time for vessels has swelled.”
Malaysia’s reserves advanced to an all-time high of 2.48 million tons in September after record monthly output of 2 million tons, according to data from the nation’s palm oil board. The surge in stockpiles was caused by the strong output, flat consumption, and “collapsing” biodiesel demand, Mistry said.
The Malaysian government will cut the export duty on crude palm oil, or CPO, and abolish a duty-free shipment quota from 2013, Plantation Industries and Commodities Minister Bernard Dompok said on Oct. 12. The new rates will range from 4.5 percent to 8.5 percent, rising as prices climb from 2,250 ringgit a ton to 3,600 ringgit. The existing levy is 23 percent.
Indonesia, the largest producer, reduced taxes last year to boost exports of processed oil, increasing competition for refiners in Malaysia. When prices of crude and refined palm oil and olein drop below $750 a ton, no export duty is imposed.
“Malaysia had no alternative but to emulate Indonesia and create a similar export-tax structure,” said Mistry. “For the long term it is exactly the right response to the situation that was created by the new Indonesian export-tax regime.”
When palm oil drops to 2,200 ringgit, or $749 a ton for cargoes delivered in Rotterdam, the commodity will be competitive for use in biodiesel and energy demand will return, reducing stockpiles within three months, he said.
World consumption of vegetable oils for biodiesel declined in year ended Sept. 30 as crude-oil prices fell, said Mistry. There are no prospects for growth in European Union biofuel mandates, he said.
Mistry said any proposal by Malaysia and Indonesia to try to halt the price fall through managing production together wouldn’t work. “Any talk of cooperation between Malaysia and Indonesia on long-term curtailment of plantations is meaningless,” he said. “It will not happen.”
Malaysia may produce 18 million to 18.2 million tons this year, while Indonesian output will probably exceed 27.5 million tons, said Mistry. There would be a so-called extended double peak in output in Indonesia this month and next, he forecast.
“The cure for low prices is low prices,” according to Mistry, who said he was citing a proverb. “A level of 2,200 ringgit for a couple of months is not an oppressive level. Each and every CPO producer will make a decent profit.”
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