Mistry slightly bullish on palm oil
Palm oil futures seen rising to RM2,700 a tonne by June
KUALA LUMPUR: Godrej International Ltd’s Dorab Mistry is turning slightly bullish on palm oil.
Benchmark palm oil futures may gradually rise to RM2,700 a tonne by June, the highest level since November, Mistry said at an industry conference here yesterday. He trimmed his production estimates for top growers Indonesia and Malaysia by 500,000 tonnes each to 37.5 million tonnes and 20.5 million tonnes. Crude palm oil prices in Rotterdam may rise to US$750 (RM2,928) a tonne, he said
Palm oil prices climbed 2.7% in February to close the month at RM2,559 a tonne as a drought in Argentina sent soybean prices surging. However, palm oil prices have fallen about 4% this month after top buyer India increased import duties, triggering concerns of a reduction in appetite for the oil used in everything from cooking oil to shampoo. In January, Mistry saw palm oil trading in a range of RM2,500 to RM2,700 until August.
In an alternative bullish scenario, oil palms could suffer tree stress as haze returns to South-East Asia this year, leaving Malaysian output unchanged in 2018 and Indonesian production up by just 2 million tonnes, Mistry said. Consumption of an extra one million tonnes of palm-biodiesel in Indonesia could be a game changer, he added.
In that scenario, combined stockpiles in the two countries could be well below 4.5 million tonnes, or even nearer to 4 million tonnes, by July, Mistry said. Although such “fireworks” aren’t expected, Rotterdam prices of crude palm oil may reach US$800 (RM3,117) a tonne, he said.
High import duties on palm oil in India is a temporary solution, Mistry said, adding that it would be better to cut taxes on crude palm oil to 34%. That would widen its spread to refined, bleached and deodorised olein and lead to a big increase in refining activity. Still, inflation may soon be a problem for India and the import taxes may fall by May, he said.
In other forecasts:
> Malaysia’s export tax on crude palm oil expected to return after the country’s elections. Indonesia’s biodiesel fund is in surplus as the palm oil-gas oil spread has narrowed.
> It will be bullish for palm oil prices if subsidies are extended to non-public service obligatory sectors, beginning with 60,000 tonnes a month.
> Rapeseed oil production in EU and Canada may rise by 2 million tonnes, India’s rape-mustard crop may drop to not more than 5.5 million tonnes from 6.7 million tonnes. There are hardly any China state reserves of rapeseed oil left to be released.
> There’s massive crushing of soybeans in China but all soyoil is consumed internally.
> Brazil to increase biodiesel mandate to B10 from March and will export very little soyoil.
> Argentina FOB soyoil prices may rise to US$770-US$790 a tonne. India seen importing 3.1 million tonnes of soyoil in the oil year starting October 2017, compared with January estimate of 3.2 million tonnes
> Palm oil imports seen at 9.95 million tonnes vs 9.85 million tonnes estimated earlier.
> Global 2017-18 edible oil supply seen rising by 6.5 million tonnes, total demand may rise by 6 million tonnes compared to earlier estimates of 7.5 million tonnes and 7 million tonnes respectively.
> Crude palm kernel oil prices in Rotterdam may face pressure after Ramadan, but won’t fall below US$900 a tonne.
Under Mistry’s bullish scenario, prices will not likely drop below US$1,000 a tonne. Forecasts based on assumptions of Brent crude at US$60-US$75/bbl; Federal Reserve to raise interest rates three times this year; US dollar to trade sideways or weaker amid stable currencies in emerging markets; strong worldwide growth below 5%.