Palm oil may decline about 14 percent as output increases in Indonesia and Malaysia, rebuilding stockpiles in the world’s two largest producers, according to Dorab Mistry, director at Godrej International Ltd.
The commodity may drop to 2,000 ringgit ($664) a metric ton after July, Mistry told Rishaad Salamat on Bloomberg Television’s “On the Move” today. The decline may come after prices gain next month on demand ahead of Ramadan, Mistry said.
Lower prices of the most-used edible oil would help to curb global food costs that rose for a third month in April to the highest level since September. Goldman Sachs Group Inc. said in a May 14 report that agricultural commodities may lose 13 percent over 12 months, predicting declines for soybeans, corn and wheat. Mistry has traded palm oil for about three decades.
“As production increases, demand has not kept pace,” Mistry said in Singapore. “Once the Ramadan demand is out of the picture, prices will begin their downturn once again.” The Muslim fasting month, when communal meals boost overall palm oil consumption, starts in July this year.
Palm oil for delivery in August closed unchanged at 2,335 ringgit a ton on Bursa Malaysia Derivatives in Kuala Lumpur. Prices, which last traded below 2,000 ringgit in 2009, have dropped 4.2 percent this year following losses in 2012 and 2011. A third consecutive annual drop this year would be the worst run since at least 1996.
Palm oil is used in foods and fuels, and China and India are the largest consumers. World stockpiles will gain 21 percent to 9.59 million tons in 2012-2013 as supply outstrips consumption, according to the U.S. Department of Agriculture.
Mistry’s price forecast is similar to calls in March, when he said palm will drop to less than 2,000 ringgit on expanding supplies and increased output of soybeans, which can be crushed to supply a rival oil. He said today that the drop to 2,000 ringgit depends on Brent crude at between $90 to $110 a barrel, and should Brent drop less than $90, palm would extend declines.
“In recent months, because of the fall in crude oil prices, the attractiveness of biodiesel as a source of energy has also diminished,” said Mistry. “Inventories are bottoming out at present. Stocks in Indonesia are expected to recover and begin to rise and will peak again sometime in the fourth quarter.”
Inventories in Indonesia may have dropped to 2.8 million tons in April, according to a Bloomberg survey. That’s the lowest level since October and 20 percent down from the estimated all-time high of 3.5 million tons in January, according to data from earlier surveys. Malaysia’s reserves have shrunk 27 percent to 1.93 million tons in April from the record in December, data from the nation’s palm oil board show.
Goldman is bearish on agricultural commodities on prospects for increased supplies from Latin America as well as record crops in the U.S. after drought last year, according to the report. Soybeans in Chicago, which traded at $14.65 a bushel today, may drop to $12.50 in six months, Goldman forecast. The U.S. Soybean Export Council has forecast a drop to less than $10.
Brent crude traded at $104.18 a barrel today after losing 6.2 percent this year. Mistry said that biofuels accounted for between 7 percent of 10 percent of total palm demand, with 80 percent used in foods and a further 10 percent by industry.
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