Palm oil may climb about 10 percent through May as Malaysia’s currency weakens before elections and inventories drop in Indonesia and Malaysia, the top producers, according to Dorab Mistry, director at Godrej International Ltd.
Futures will trade between 2,400 ringgit ($771) and 2,700 ringgit a metric ton on Bursa Malaysia Derivatives Bhd., he said in remarks prepared for delivery at a conference in Beijing today. He had predicted a range of 2,300 ringgit to 2,500 ringgit through April at a meeting in Kuala Lumpur on March 6. A bear market is set to deepen after August as futures drop below 2,000 ringgit, he said today, reiterating a previous forecast.
Prices of the oil used in foods and fuel fell 26 percent in the past year as inventories rose in Indonesia and Malaysia on higher output and slowing demand in China and Europe. Mistry is now predicting stockpiles in Malaysia will drop below 2 million tons in June from 2.44 million tons in February while Indonesian reserves will fall below 4 million tons, before output rebounds.
“I am expecting a strong recovery in CPO production in both countries in the second half,” said Mistry, using the initials for crude palm oil. “This will coincide with a strong recovery in soya oil, rape oil and sunflower oil production in other parts of the world.” Prices will come under pressure after June and “under strong pressure” once the low-output cycle ends in August to September, he said.
The ringgit weakened 3.4 percent against the dollar since reaching a 10-month high in January. Prime Minister Najib Razak must dissolve parliament by April 28 and hold a vote by the end of June. Futures are not expected to drop below 1,800 ringgit unless Brent crude trades below $80 per barrel, said Mistry.
“The ringgit has also shown a tendency towards weakness as the Malaysian elections approach,” said Mistry. “If the ringgit weakens as the election campaign gets under way, prices denominated in ringgit have greater scope to rise.”
The contract for delivery in June gained 0.4 percent to 2,465 ringgit at 3:21 p.m. in Kuala Lumpur. Prices haven’t traded below 1,800 ringgit since 2009. A weaker ringgit makes purchases cheaper for holders of other currencies.
Malaysia’s inventories have dropped from an all-time high of 2.63 million tons in December, according to the nation’s palm oil board. Indonesia, which doesn’t issue official data on output or reserves, may have had stockpiles of about 3 million tons in February, according to a Bloomberg survey last month. Mistry on March 6 estimated them to be close to 5 million tons.
U.S. farmers are poised to plant the most soybean acres ever, according to a survey of 32 analysts by Bloomberg published yesterday. The U.S. government has predicted the harvest will reach an all-time high of 3.4 billion bushels, doubling inventories by Aug. 31, 2014. The beans can be crushed to yield an alternative oil to palm.
Soybean plantings may gain on corn because of crop rotation, said Mistry. The Department of Agriculture releases its planting-intentions report on March 28.
Soybean oil prices will retreat to $900 a ton from ports in Argentina by September, said Mistry. Soybeans on the Chicago Board of Trade will drop to $10 a bushel, while corn will decline to $4.50 a bushel if good weather prevails, he said. Soybeans traded at $14.41 today and corn was at $7.3175.
Sunflower-seed crops in Ukraine and Russia are expected to be bigger compared with last year on better weather, said Mistry. From September, sunflower oil will exert pressure on all oils, particularly on the soybean variety, he said.
China’s consumption of vegetable oils is slowing down as the world’s biggest consumer is transitioning from a middle-income country to a high-income one, said Mistry. The country’s stricter rules on imports of cooking oils effective this year may turn the nation into an importer of crude palm oil so it can be refined and fractionated within the country, he said.
“Growth in terms of national economies continues to be feeble in most of the developed world,” Mistry said. “Demand for commodities remains flat and prices have fallen. This development favors major commodity importers.”