Palm oil will drop “significantly” in the fourth quarter as output from new trees in Indonesia, the biggest grower, surpasses estimates and buyers switch to soybean oil, DBS Vickers Securities (Singapore) Pte. said.
Palm oil futures traded in Malaysia will average 2,363 ringgit ($747) a metric ton in the six months to December, 6 percent less than the 2,509 ringgit average so far this year, said Ben Santoso, a plantation analyst at DBS Vickers.
“People are underestimating the supply potential from mature trees that’ll come in toward the end of the year and prices will drop significantly in the fourth quarter,” Santoso said in a phone interview from Singapore yesterday. “Refiners and crushers are switching to soybeans and oils and that may accelerate in the coming months.”
Palm oil dropped by the most in more than three months yesterday after reports showed that shipments from Malaysia declined this month. The commodity has rallied 18 percent since falling to an eight-month low on July 7, on optimism that consumption will increase as Asian nations mark festivals in the September quarter and on concern that weather may disrupt output in Indonesia and Malaysia, the top producers.
Indonesia’s output may gain 4 percent to 22 million tons this year, boosted by oil from 660,000 hectares (1.63 million acres) of maturing trees that are producing for the first time, Santoso said. In Malaysia, where about 140,000 hectares of trees is maturing, production may gain to 17.8 million tons this year from 17.6 million in 2009, he said.
Switching to Soybeans
Buyers including Wilmar International Ltd., the world’s largest palm oil trader, are switching to soybeans and its oil as margins from refining crude palm oil narrow, Santoso said. Wilmar supplies almost half of China’s cooking oil needs. China’s soybean imports this year through July rose 16 percent to 30.8 million tons, according to Bloomberg data.
India, the world’s biggest palm oil importer, may boost soybean oil imports this year, Santoso said. The nation’s purchases may jump to 1.8 million tons in the year ending Oct. 31, from 1 million tons a year earlier, Govindlal G. Patel, director of vegetable oils trading company Dipak Enterprise, said on May 13.
“The switch to soybeans and its oil will accelerate in the coming months,” Santoso said.
Palm oil for October-delivery slumped 2.2 percent to 2,670 ringgit a ton on the Malaysia Derivatives Exchange yesterday, the biggest drop since April 19, while soybean oil gained 0.5 percent to 42.45 cents a pound. That widened its premium over palm oil to $85.58 ton from $68.76 a ton on Aug. 9, according to Bloomberg data.
Still, palm oil prices may stay “strong” until the end of September as harvests in Malaysia and Indonesia may be hampered by a shortage of workers because of the Muslim festivals of Ramadan and Eid, Santoso said. Stockpiles in Malaysia may drop in August and September as output lags behind exports, he said.
Malaysian palm oil output expanded 7 percent in July from a month earlier to 1.52 million tons, the most since March, the board said. Stockpiles fell to 1.41 million tons, the lowest level since July 2009, the Malaysian Palm Oil Board said in a statement yesterday. Exports grew 1.8 percent to 1.47 million tons from June, it said.
“The oil extraction rate in palm is showing a decline as fruit formation seems to have been affected by a combination of excess rain and dry weather,” said Leow Huey Chuen, an analyst at UOB Kay Hian. “Inventory level has fallen below a month’s production and that’s supportive for prices.”