Palm Favored by Ospraie Rising as Reserves Retreat: Commodities

Palm oil is rebounding from a seven-month bear market after Malaysia, the second-biggest grower, cut export taxes to diminish record stockpiles.

Inventories will drop 16 percent to 2.2 million metric tons by March, the most since 2010, after tariffs were reduced to zero this month, according to the median of six analyst and trader estimates compiled by Bloomberg. Futures will rally 14 percent to 2,800 ringgit ($921) a ton in Kuala Lumpur by the end of this quarter, the median of 13 estimates shows.

The most-consumed cooking oil rose 11 percent since hitting a three-year low in December on prospects for more exports and as trees, which are harvested throughout the year, start their lowest-yielding quarter. Dwight Anderson, the founder of New York-based hedge fund Ospraie Management LLC, said last month that palm was one of his top commodity picks for 2013. Dorab Mistry, who has traded the oil for three decades, says prices probably already peaked this year because output will rebound.

“Palm oil will climb in the first quarter, or until May, as stockpiles may decline,” said Hariyanto Wijaya, a Jakarta-based analyst at PT Mandiri Sekuritas, a unit of the biggest bank by assets in Indonesia, the largest palm-growing nation. “The price will probably drop in the second half because of increased output in Malaysia and Indonesia.”

Raw Materials

Futures that fell as low as 2,217 ringgit on Dec. 13 on the Malaysia Derivatives Exchange advanced 1.9 percent to 2,465 ringgit today. They slumped 23 percent in 2012, the biggest rout since 2008. The Standard & Poor’s GSCI gauge of 24 raw materials rose 2.8 percent this year and the MSCI All-Country World Index of equities added 3.7 percent. A Bank of America Corp. index shows Treasuries lost 0.4 percent.

Malaysian inventories reached a record 2.63 million tons in December, or about 14 percent of the country’s annual output. That prompted the government to reduce the export tariff from Jan. 1 to 4.5 percent to 8.5 percent, from about 23 percent. With prices still below the threshold that triggers the lowest rate, the tax was removed completely for January and February.

The anticipated surge in shipments will coincide with a seasonal drop in output. Harvesting typically peaks in September or October and reaches its lowest point in January or February, with an average decline of 34 percent in the past five years, data from the Malaysian Palm Oil Board show. That should also boost prices, and demand will strengthen because of rising costs for competing oils, said Ivy Ng, an analyst at CIMB Group Holdings Bhd., Malaysia’s second-largest lender by assets.

Global Reserves

Soybean oil, the most-consumed after palm, advanced 5.6 percent to 52.46 cents a pound in Chicago trading this year after U.S. farmers endured the worst drought since the 1930s. Global reserves of the commodity will tumble 15 percent to 3.27 million tons by September, the steepest slump since 1997, the U.S. Department of Agriculture estimates.

Palm may reach 2,600 ringgit this quarter and rally further by June, said Sabri Ahmad, the chief executive officer of Felda Global Ventures Holdings Bhd., the third-largest plantation operator. He cited lower output and higher demand for the oil for use in the production of biofuels. A record 5.6 million tons was used for fuel in 2012, according to Oil World, a Hamburg-based research company.

That may not be enough to diminish the glut of supply as harvesting accelerates in the second quarter. Production in Indonesia, which together with Malaysia accounts for 87 percent of world output, will expand 8.1 percent to a record 28 million tons this season, the USDA estimates. The country’s stockpiles may swell to 3.5 million tons this month, from 3.25 million tons in December, according to the median of four estimates.

Production Expands

Global output will expand 5.2 percent to an all-time high of 53.33 million tons in 2012-2013, leaving stockpiles at a record 7.083 million tons by the end of the season, the USDA predicts. Prices surged to a record 4,486 ringgit in 2008 and climbed again to 3,967 ringgit in 2011, encouraging production.

Palm will drop below 2,200 ringgit in August or earlier, amid a worldwide glut of edible oils, Mistry told a conference in Bali in November. Prices may have already peaked this year, he said in an e-mail Jan. 9, without revising his November forecast. Worldwide production of nine edible oils tracked by the USDA including palm, peanut and soy will expand to a record 157 million tons this year, or 63 percent more than a decade ago, the agency estimates.

Titanic Again

“Production of oilseeds looks terrific for 2013,” wrote Mistry, a director at Godrej International Ltd., who became known as Mr. Titanic after he correctly compared vegetable oil prices to the ill-fated liner in 1998. “I am afraid it is the Titanic again. The ship of world vegetable oils is taking in water by the hour.”

Stockpiles at major ports in China, the biggest consumer after India and Indonesia, rose to a record 1.18 million tons, the state-owned China National Grain & Oils Information Center said Jan. 16. India, the largest user, said Jan. 17 that it will tax crude-palm-oil imports for the first time since 2008 to protect its farmers from a surge in shipments.

Rabobank International expects palm to rally to 2,700 ringgit in the second quarter before easing to 2,600 ringgit and 2,500 ringgit in final two quarters.

Slumping palm helped contain global food costs last year even as droughts from the U.S. to Europe drove soybeans and corn to records. The United Nations’ gauge of prices across 11 oils and fats retreated 22 percent since April as its overall index of 55 foods fell 1.7 percent.

Diesel Discount

Ospraie’s Anderson said in a Dec. 5 interview on Bloomberg Television that he’s bullish on palm because of its discount to diesel, which increases its attractiveness for use in biofuel. Jonathan Gasthalter, a spokesman for Anderson, declined to comment in an e-mail Jan. 10.

Palm’s discount to gasoil, another so-called middle distillate comparable with diesel, was at $150.2 a ton today, according to data compiled by Bloomberg. Malaysia will extend nationwide a program to use a 5 percent palm blend in biodiesel and also introduce a 10 percent blend, Plantation Industries and Commodities Minister Bernard Dompok said Jan. 14.

Demand may also surpass current forecasts as economies strengthen. China accelerated for the first time in two years in the last three months of 2012 and U.S. growth will gain every quarter through the end of 2013, the medians of estimates from as many as 91 economists compiled by Bloomberg show.

Felda will report a 21 percent gain in profit to 951.44 million ringgit this year, according to the mean of 18 analyst estimates. The company’s refining margins should improve after the cut in export tariffs, according to Hoe Lee Leng, an analyst at RHB Capital Bhd. in Kuala Lumpur who anticipates an average price of 2,800 ringgit in 2013.

“Overall I don’t see a bearish sentiment, I see a friendly market,” said Felda’s Sabri. “In terms of the supply side, the next three months are going to be quite tight.”

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