Palm oil, the world’s most-used cooking oil, is poised to tumble to a two-year low as inventories surge in Indonesia and Malaysia, the biggest producers, and a global economic slowdown curbs demand.
Futures in Malaysia, the global benchmark, may slump to between 2,600 ringgit ($852) and 2,700 ringgit a metric ton by December, Dorab Mistry, director at Godrej International Ltd. said in Mumbai today, lowering his forecast from the 2,900 ringgit to 3,300 ringgit made on Sept. 6. The commodity last traded below 2,600 ringgit in September 2010. With the recent sell-off, the probability of prices falling to 2,300 ringgit has risen to 50 percent from 20 percent in June, he said.
Palm oil, used in everything from candy to biofuels, has fallen 8.5 percent this month as demand slowed from importers including China and the European Union, and stockpiles surged because of a seasonal increase in production. Falling prices may reduce revenues for producers including Sime Darby Bhd (SIME) and IOI Corp. and help cap increases in global food costs.
“Demand for palm oil in particular, and for vegetable oils in general has been softer than expected in 2012,” said Mistry, who has traded palm oil for more than three decades. Demand was hurt by slower growth in the production of biofuels from vegetable oils and a slowdown in economic growth in the developing countries amid high prices, he said.
Futures have fallen 20 percent since the end of March and are heading for a second straight quarterly decline on concern that a pick-up in production will drive stockpiles in Malaysia and Indonesia to records. The December-delivery contract fell 2 percent to 2,763 ringgit a ton on the Malaysia Derivatives Exchange on Sept. 21, the lowest price at close for the most- active contract since October 2010.
Stockpiles in Malaysia will continue to expand in October, November and December and may reach as high as 3 million tons by January, Mistry said. Inventories in Indonesia have hovered between 3.5 million tons and 4 million tons since 2010 as against popular estimates of 1.5 million tons to 2 million tons, he said. Production in Indonesia may climb to 27.5 million tons in 2012, higher than the 27 million tons estimated on Sept. 6, while Malaysia’s output may be 18 million tons this year, less than the 18.2 million tons forecast previously, he said.
“The supply position on palm oil is therefore extremely comfortable and is likely to remain that way for the next several months,” Mistry said.
Prices may drop to 2,500 ringgit a ton by December because of rising stockpiles, said Dinesh Shahra, managing director of Ruchi Soya Industries Ltd. (RSI), the country’s biggest importer of cooking oils.
“There is a large potential for prices to go down substantially,” Shahra said. “There is a slowdown in China, and Europe has slowed purchases for biodiesel. The discount between soybean oil and palm oil will further widen.”
The gap between the two oils, which jumped to a four-year high this month, widened to $304.67 a ton on Sept. 21, data tracked by Bloomberg showed. The record is $493.76 in August 2008. Soybean oil and palm oil are used in foods and fuels.
Global vegetable-oil supplies will increase by 3.05 million tons in 2012-2013, while demand may expand by 3.5 million tons, Mistry said. Soybeans may reach a record $20 a bushel in December or January and drop with the swelling of harvests in Brazil and Argentina, he said.
Cooking oil imports by India, the largest palm oil buyer, may climb to a record 10 million tons in the oil year ending Oct. 31 on lower domestic oilseed output, Mistry said. Stockpiles in India at the end of October will be higher than in previous years, he said.
Vegetable-oil imports climbed 19 percent to 8.16 million tons between November and August, according to the Solvent Extractors’ Association of India. Stockpiles, including those at ports and in the pipeline, totaled 1.55 million tons as of Sept. 1, it said on Sept. 14.
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