Palm oil may gain 15 percent by the end of June, according to Godrej International Ltd.’s Dorab Mistry, restating a yearlong call for a rally to 4,000 ringgit ($1,303) a metric ton after prices dipped.
“I am very happy to reiterate my forecast,” Mistry said in an e-mailed response to questions. The Godrej director, who’s correctly forecast price trends over the past year, has been predicting a rally to that level since at least March 2011. Wilmar International Ltd. (WIL), the world’s biggest palm-oil processing company, is Mistry’s favorite palm stock, he said.
While prices in Malaysia have climbed 9.1 percent this year, in line with Mistry’s outlook, they’ve fallen 4.5 percent since April 10 amid concern the global recovery may be at risk as economic growth in China slows and the European debt crisis worsens. Shares in Wilmar International, which have dropped over the past 12 months, are “good value,” he said.
“My price forecasting is based on fundamentals of supply and demand and these have not changed,” he wrote. “In fact, CPO production is underperforming more than my model had suggested,” referring to crude palm oil by its initials.
Palm oil for July delivery dropped as much as 1 percent to 3,444 ringgit a ton on the Malaysia Derivatives Exchange, and ended the morning session at 3,465 ringgit. That’s down from a 13-month high of 3,628 ringgit on April 10.
“Currently, the macro picture is undergoing a reassessment and that has led some players to de-risk,” said Mistry, who’s traded palm oil for more than three decades. “This sentiment changes from time to time, and as time goes by, each such change lasts for a shorter duration. Time will tell.”
Last year, Mistry predicted the price of the world’s most- consumed cooking oil, used to make instant noodles and candy, would bottom out at about 2,800 ringgit before rebounding. Its lowest price was 2,754 ringgit on Oct. 6. Chandran Sinnasamy, trading head at Kuala-Lumpur based LT International Futures (M) Sdn., said last month his views are respected by the industry.
China, the biggest user of cooking oils, reported lower- than-expected gross domestic product growth in the first quarter, raising concern that commodity demand may slow. Europe’s resurgent debt crisis has also roiled equity and commodity markets as government bond yields climbed.
Production of palm oil in Malaysia and Indonesia in January and February fell slightly short of forecasts, Mistry said in a speech in Beijing on March 27. The two countries are the world’s largest producers.
In March, Malaysian production was 1.21 million tons, according to the nation’s palm oil board. That’s 14 percent lower than a year ago and 2.1 percent more than February. Malaysia had a so-called high cycle of production in 2011, resulting in record output of 18.9 million tons. A so-called low cycle that began in January meant output would range between 18.6 million and 19 million tons in 2012, Mistry said March 7.
The ratio of global stockpiles to demand for nine edible oils, including soy and palm, may drop this year to the lowest level since 1977 as drought hurt soybean crops in South America, according to data from the U.S. Department of Agriculture.
“At current prices, Wilmar looks very good value,” said Mistry. “They have by far the most balanced and diversified palm portfolio split between upstream, processing and FMCG,” he said, referring to fast-moving consumer goods. While Singapore- listed Wilmar is one of Godrej’s suppliers, he doesn’t own the company’s stock, Mistry said.
Wilmar shares dropped 0.2 percent to S$4.88 at 12:59 p.m. in Singapore, valuing the company at S$31.2 billion ($24.9 billion). They’ve lost 7.4 percent over the past year, and 2.4 percent in 2012. Of the 30 analysts’ calls on Wilmar stock tracked by Bloomberg, there are 11 “buys” and 14 “holds.”
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