Analyst bearish on palm oil prices
KUALA LUMPUR: Palm oil prices are expected to drop 11% from current levels to a more than three-month low by the end of 2016, and extend losses through June as production and inventories recover from an El Nino weather event, a leading industry analyst said.
Benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange have already gained 14% this year with dryness linked to last year’s El Nino hurting palm fruit bunches in top producers Indonesia and Malaysia. Prices hit an almost three-year high this week and are now at RM2,826 per tonne.
Palm oil futures will drop to RM2,500 by the end of December, analyst Dorab Mistry said yesterday at the China International Oils & Oilseeds Conference in Guangzhou. That would be the lowest since early September.
The market will sink further to RM2,200 by June next year, a level last seen in July 2016, due to “sustained pressure” as the impact of El Nino wears off, he added.
“I anticipate a build-up of stocks in Malaysia as well as Indonesia,” Mistry said.
In the oil year from Oct 2015 to Sept 2016, global palm oil production declined by a record of over 6 million tonnes, but there will be a “strong recovery” next year, Mistry said.
He reiterated that world output would recover by nearly 6.5 million tonnes for the oil-year 2016/17 and calendar year 2017.
Mistry forecast Malaysian palm oil production in the current calendar year at 17.5-17.7 million tonnes. That would be a drop of 11-12% from a year ago.
The analyst, however, cautioned that his price projections did not take into account the outcome of the US presidential elections. If Republican Donald Trump wins, there will be a knee-jerk reaction from markets and it can be at least one month before fundamentals re-assert themselves, he said. – Reuters