Palm oil may top RM3,300 on weather concerns
November 07, 2010KUALA LUMPUR, Nov 7 — Malaysian crude palm oil futures may hit RM3,300 per tonne in the next few weeks as weather concerns plague global oilseed output, a top analyst said today. The estimate by Godrej International’s Dorab Mistry assumes a 3.4 per cent rise from current prices at a time of rising economic growth in top buyers China and India.
The weaker US dollar has also triggered an inflow of funds into commodities as an inflation hedge and makes palm oil priced in the greenback much cheaper for overseas buyers.
“However, I am afraid that (new) level will not be sufficient to ration demand,” Mistry said in a speech due to be delivered at an oilseed conference in the southern China city of Guangzhou.
“The period of greatest tightness will be between February and May 2011 and we may require even higher prices in December and January to prepare the world for that tightness.”
Benchmark Malaysian prices this year have support from an output shortfall in Malaysia and, to some extent, in top producer Indonesia as El Nino’s hotter weather dried up yields.
London-based Mistry said the subsequent back-to-back transition from El Nino to La Nina in the middle of 2010 has caused severe imbalances in the global climate and may further hurt overall oilseed production.
La Nina can bring more rains to palm oil producing Southeast Asia that aids in oil palm pollination but the weather condition potentially triggers hotter weather in soyoil-exporting South America that can affect soybean crop yields.
“Even with current estimates of 67 million tonnes of beans for Brazil and 52 million for Argentina, the world’s supply and demand fundamentals are very tight. Any loss due to La Nina will make it tighter,” Mistry said.
Mistry, head of vegetable oil trade in Godrej International, said cash Argentine soyoil may rise as much as 10 per cent to US$1,250 (RM4,250) per tonne in the short term as consumers shift to soyoil after chasing tight rapeseed oil and sunseed oil supplies.
Thanks to liberal use of fertiliser in oil palm estates as benchmark prices rallied this year and as trees’ biological cycle shifts into a higher gear from April next year, palm oil might make up for the shortfall in soyoil, Mistry said.
“However, the slowdown in acreage expansion in Indonesia will mean that overall in 2011 we shall have growth in palm oil production of only about 2.5 million tonnes,” he said in a reference to green campaign against plantation expansion.
“This will have profound implications for price behaviour and the world must be braced for much higher prices in the years to come.”
In the past, overall palm oil output growth has gone above 3 million tonnes annually, traders say. — Reuters