Malaysia palm oil prices may fall 17% by December

MUMBAI: Benchmark Malaysian prices for crude palm oil are likely to fall nearly 17% from current levels by November or December as overseas appetite for the commodity falters over the winter, leading industry analyst James Fry said.

Malaysian crude palm oil (CPO) futures would drop below RM2,400 (US$572) per tonne in the last two months of the year, with their discount to other edible oils like sunflower and soyoil widening, Fry told the Globoil India conference.

Prices for the commodity, used to churn out products ranging from soap to biofuel, stood around RM2,880 on Thursday.

They have jumped nearly a fifth in the past three months.

Indonesia and Malaysia account for nearly 90% of global palm oil production.

Places such as China and Europe normally reduce their intake of palm oil in winter months as the tropical product solidifies in cold temperatures.

European Union CPO prices would likely drop by almost US$100 from their August average of US$674 per tonne by November-December, added Fry, the chairman of commodities consultancy LMC International.

A recent rally in palm futures based on reports of sharp fall in CPO output in Malaysia is “irrational” as the reduction in production due to national holidays would be made up later, said Fry.

“CPO output is recovering from the devastating impact of the El Nino drought,” he said. An El Nino weather pattern hit South-East Asian palm production hard in 2015, bringing drought conditions to parts of the region.

Sunflower oil would remain the most price-competitive alternative to palm oil in the European Union market over the next six months, Fry said.