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Palm Oil May Climb ‘Substantially’ on Dry Weather

Palm oil may advance in the second half as dry weather caused by El Nino pares output in Malaysia and Indonesia, according to Godrej International Ltd.

The tropical commodity may rise as high as 3,200 ringgit ($1,004) a metric ton after June, Dorab Mistry, a director at Godrej, said in remarks prepared for a conference in Dubai, restating a prediction made in March.

El Nino, which damages crops of rice, corn, sugar cane and palm oil in Asia, has started to weaken after reaching a peak in the third week of December, according to India’s weather bureau. Still, its effects will be felt later in the year.

“Typically the effect on production comes after a time lag and we are yet to see them,” said Mistry, who has traded edible oils for more than three decades.

Palm oil will rise “substantially” after June and trade between 2,800 ringgit and 3,200 ringgit, he said. July-delivery futures added 2 percent to 2,540 ringgit on April 23. The price rallied 57 percent last year.

Malaysia will produce 17.2 million tons of palm oil this year, down from 17.56 million tons in 2009 and 17.72 million tons in 2008, while output in Indonesia may increase by only 1 million tons, Mistry said, repeating an estimate made in March.

Output gained 20 percent to 1.39 million tons in March from 1.16 million tons in February and exports increased 7.7 percent to 1.39 million tons, the Malaysian Palm Oil Board said April 12. The jump does not presage an upturn in the cycle, Mistry said.

‘Remain Bullish’

“One month’s production can be misleading and there is no reason to believe that it will herald a general recovery in production,” he said. “Whilst exports expand, production will lag behind that expansion. That is why I remain bullish.”

The tropical oil may also be supported by China’s curb on imports of soybean oil from Argentina, Mistry said. Argentina supplies about three-quarters of the Asian nation’s demand.

“The domestic impact of this measure will be to improve crush margins in China and keep the import of soybeans by China at a record level,” he said. “Yet, have we seen Argentinean soya oil prices collapse? Not at all.”

The free-on-board Argentinean soybean oil prices will rise from current levels of $800 a ton to about $1,000 after August, Mistry forecast.

Global vegetable-oil demand will increase by 6 million tons this year, aided by the forecast world economic expansion of 4.2 percent, he said. Food oil and biofuel demand may increase by 4 million tons and 2 million tons, respectively. That’s more than the expected supply increase of 3.3 million tons, Mistry said.

The U.S. Department of Agriculture estimates global demand for vegetable oils will rise to 135.47 million tons this year, from 129.11 million tons a year earlier, while output will increase to 137.29 million tons, from 132.14 million tons.

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