- Production growth cut after 40% reduction earlier this month
- Futures may top 2,600 ringgit on weak Malaysian currency
Just two weeks ago in China, Dorab Mistry reduced his palm oil output growth forecast by 40 percent. Now in Bali, the vegetable oil analyst cut it again -- this time by a third -- as El Nino takes hold and after haze smothered Southeast Asia.
Global production of the most-used cooking oil will rise by 1 million metric tons in 2016, according to Godrej International Ltd. director Mistry. That’s down from the 1.5 million ton gain he forecast Nov. 12 in Guangzhou.
“The big question in front of every trader is - What effect will the current El Nino have on palm oil production in 2016?,” he said in remarks prepared for delivery at a conference Friday. “We have endured a severe spell of dry weather and the haze. Very recently World Weather has forecast that rainfall will begin to diminish again after a few weeks.”
The commodity used in everything from chocolate to lipstick and biofuel has rallied about 26 percent from a six-year low in August amid concern drought brought by the weather event and smog from Indonesia’s forest fires will squeeze supplies. This El Nino may rank among the three strongest since 1950, the World Meteorological Organization says. Indonesia and Malaysia supply around 86 percent of the world’s palm oil.
Mistry also cut his forecast for global edible oil supply to a gain of 3.1 million tons in 2015-16 from 3.6 million tons projected earlier this month, while demand is now forecast to expand by 5 million tons compared with 5.1 million.
Palm oil can rally to 2,600 ringgit if the Malaysian currency weakens past 4.50 per dollar, higher than his previous forecasts of 2,500 ringgit, said Mistry. Such a level will be feasible just for a short time as it’s not sustainable “unless mineral oil prices rise significantly”, he added.
Futures in Kuala Lumpur closed at a two-week high of 2,341 ringgit a ton ($553) Thursday on speculation that Indonesia will consume more palm for fuel.
Mistry maintained his outlook that there is little room for palm oil prices to climb further from now as Indonesia’s biodiesel subsidy would only be available for around 220,000 tons of biodiesel per month.
“For the last two years Indonesia has been promising a great deal on consumption of palm biodiesel but has done very little to deliver on those promises,” said Mistry, who has traded vegetable oils for more than three decades. “I am happy some bold measures have been announced. Now we must look for strong implementation.”