Palm oil, the world’s most-used cooking oil, may drop for the first time in three years as favorable weather boosts supplies and a global economic slowdown weakens demand, potentially cooling world food costs.
Prices in Malaysia, the global benchmark, may decline to 2,800 ringgit ($879) per metric ton by December, according to the median forecast in a Bloomberg survey of 10 analysts and importers at the Globoil India conference in Mumbai on Sept. 24 and Sept. 25. The tropical commodity, which has slumped 23 percent this year, more than doubled in the previous two years.
A decline in prices of the oil, used in everything from biodiesel and cosmetics to chocolate and potato chips, may help cap global food costs monitored by the United Nations that climbed 26 percent in the past year, and ease pressure on central banks to raise interest rates. India and China are the world’s biggest palm oil importers.
“The increase in world supply will outstrip the increase in world demand for the first time in the last three years,” Dorab Mistry, director at Godrej International Ltd., said at the conference in Mumbai yesterday. “This is very significant.”
Mistry, who’s traded the vegetable oil for more than three decades, expects futures in Kuala Lumpur to trade between 2,800 ringgit and 3,100 ringgit until the middle of November, before a pickup in demand lifts prices to 4,000 ringgit by April-June. Prices may drop to 2,850 ringgit a ton in the next three months, as production expands in Malaysia and Indonesia, the biggest growers, Thomas Mielke, executive director at industry researcher Oil World, said yesterday.
The December-delivery contract on the Malaysia Derivatives Exchange slumped as much as 4.5 percent to 2,857 ringgit a ton today, the lowest level since Oct. 8. Futures fell 2.8 percent last week, the biggest drop since the week to June 10.
“The recent high prices have hurt demand, confirmed by a slowing down of trade and of crushing,” Mielke said. Vegetable oil prices may increase only from January, he said.
Commodities fell to a 10-month low today on deepening concern that governments are running out of tools to avert a global recession, eroding demand for raw-materials. The Standard & Poor’s GSCI Index of 24 of energy, metal and agriculture prices dropped as low as 583.68, the lowest level since Dec. 1. The gauge slumped 8.2 percent last week, the most in four months. The benchmark has tumbled 21 percent since touching a 32-month high in April.
“There is a panic in the market because everyone remembers 2008,” Abdul Rasheed Janmohammad, chairman of the Pakistan Edible Oil Refiners Association, said referring to the selloff in commodities after Lehman Brothers Holdings Inc. filed for bankruptcy. “There should be some improvement in confidence for prices to recover.”
Palm oil production in Malaysia will peak this month and in October, expanding stockpiles, Godrej’s Mistry said. Output may gain to 19 million tons this year in Malaysia, while it may total 25.5 million tons in Indonesia, the largest producer, said Mistry, sticking to his forecast first made in July.
In Malaysia, production totaled 12 million tons in the January-August period, 8.2 percent more than a year earlier, while shipments gained 3.8 percent to 11.3 million tons, according to the nation’s palm oil board.
Global vegetable oil production this year will expand by 9 million tons, exceeding the 6.5 million tons growth in demand, according to Mistry.
“It is also seen that world stocks will rise significantly,” said Mistry. “This rise in stocks will materialize mainly in the second half of the year. That is when palm oil production will be at its highest and Russian and Ukrainian sunflower seed crush will be strong.”
Sime Darby Bhd., the world’s biggest publicly listed palm-oil producer, expects harvests from plantations in Malaysia and Indonesia to climb in the year to June as yields improve, Group Chief Executive Officer Mohd Bakke Salleh said on Sept. 21.
Shares of Sime Darby, Kuala Lumpur Kepong Bhd. and IOI Corp. dropped in Kuala Lumpur trading today after palm oil futures declined. Sime declined as much 2.4 percent to 7.91 ringgit, KL Kepong retreated as much as 6.8 percent to 19.30 ringgit, while IOI fell as much as 5.5 percent to 4.26 ringgit.
The price may plunge to as low as 2,525 ringgit a ton by March if Brent crude oil extends its decline to $87 a barrel, James Fry, chairman of LMC International Ltd., told the conference yesterday. Brent for November delivery fell as much as 2.2 percent to $101.66 a barrel on the London-based ICE Futures Europe exchange today.
A plan by Indonesia to lower the tax on refined palm oil products may boost its exports, swelling inventory in Malaysia, Fry said. That may “depress” prices, he said.
Indonesia will levy a maximum tax of 10 percent on refined, bleached and deodorized palm oil from Oct. 1, while crude palm oil will be taxed at a maximum of 22.5 percent, according to a Finance Ministry Decree signed Aug. 15.
Malaysia’s palm oil exports fell 11.9 percent to 1.2 million tons in the first 25 days of September from the same period in August, independent market surveyor Intertek said.
Palm oil output in Malaysia may remain flat next year or increase marginally after a bumper harvest this year, while production growth in Indonesia will be less than a normal year, Godrej’s Mistry said.
“There will be several short periods between now and the middle of 2012 when markets will be extremely volatile,” said Mistry. “So much so that we shall even try to forget the fundamentals and look only at the performance of financial markets and equities.”