March 6 (Bloomberg) -- Palm oil will probably advance as the global economy recovers and the government provides incentives for farmers to cut down old trees, said Malaysian Plantation Industries and Commodities Minister Bernard Dompok.
“I’m bullish on prices,” he said in an interview in Kuala Lumpur yesterday. “The economies are largely improving.”
Malaysia, the second-largest producer, has announced plans to encourage growers to remove 25-year-old trees that yield less oil on 300,000 hectares and replant them. Trees on 100,000 hectares may be cut and replaced this year, lowering output by 400,000 metric tons and helping cap inventories, he said. It takes at least three to four years for trees to reach maturity. The country has 5 million hectares of palm plantations .
Palm, which dropped 23 percent last year, is trading in a bear market after supplies of the world’s most consumed oil expanded to the biggest ever. Prices may plunge more than 17 percent later this year from their level now on increased harvests, Dorab Mistry, a Godrej International Ltd. director, said today. Dompok is counting on an economic recovery to boost rates. China will see growth speed up to 8.3 percent in the June quarter, the fastest since 2011, a Bloomberg survey shows.
“When there’s strong demand from India, China and Pakistan, then we’ll see prices going up,” said Dompok.
India, the world’s largest palm oil buyer, will increase imports by 12 percent to 8.5 million tons in the year that started in November, Dinesh Shahra, managing director of the Mumbai-based Ruchi Soya Industries Ltd., said in an interview this week. Ruchi is the largest buyer and refiner in India.
Malaysia’s plan to increase the use of palm in biodiesel through the middle of next year may absorb about 1 million tons of inventories, Dompok said. The country has reached the limit of the amount of land it can use for palm cultivation, and while supply may expand through higher productivity, output probably won’t increase much above the level today, he said.
Production will total 18.9 million tons in 2013, matching the biggest crop ever in 2011, the Malaysian Palm Oil Board says. Reserves rose to a record 2.63 million tons in December, stood at 2.58 million tons in January and probably dropped to 2.44 million tons in February, a Bloomberg survey shows.
Output in Malaysia will be 19.5 million tons to 19.7 million tons this year and it will exceed 30 million tons in Indonesia, the top supplier, Mistry estimates. His outlook presented at the Palm and Lauric Oils Conference in Kuala Lumpur today raises the prospect of prices dropping for three straight years, the worst run since 1996.
Felda Global Ventures Holdings Bhd., the world’s third-largest plantation operator, already replanted 15,000 hectares of aging trees last year and will “aggressively pursue replanting,” Chief Executive Officer Sabri Ahmad said at the palm oil conference today.
Malaysia doesn’t plan to change its export tax policy or introduce a period of duty-free shipments to clear stockpiles because the experience in January and February shows that fails to push up prices, said Dompok. There was no tax on shipments in the first two months as the price fell below the threshold that triggered it. The duty rose to 4.5 percent this month.
Futures were little changed at 2,399 ringgit ($773) a ton in Kuala Lumpur today. Prices have declined 1.6 percent this year as the Standard & Poor’s GSCI Index of eight agricultural commodities fell 1.4 percent and the MSCI All-Country World Index of equities advanced 5.6 percent.
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