Palm Oil Outlook Seen Bearish by Mistry on Oilseed Supplies

Palm oil probably will drop this year after Asian producers boosted acreage and global oilseed supplies rose, said Dorab Mistry, a Godrej International Ltd. director who’s traded the commodity for more than 30 years. Prices fell, erasing this year’s gain.

The expansion of palm estates will increase output, while bad weather that disrupted soybean supplies in 2012 will prompt farmers to ramp up harvests this year, said Mistry, who is scheduled to speak next week at an annual palm conference in Kuala Lumpur arranged by Bursa Malaysia Bhd. Malaysia is the world’s largest supplier after Indonesia.

Palm, used in food and fuels, averaged the second-highest ever last year even as supply and stockpiles surged to records. Lower prices would help to cut global food costs at the same time that U.S. Department of Agriculture Chief Economist Joe Glauber forecasts corn and soybeans will slump as growers boost crops in response to last year’s weather-driven disruptions.

“High-price spirals always lead to a strong supply response, we are seeing one in 2013,” Mistry said in an e-mail reply to questions. “The cyclical bull market in commodities also made palm plantations extremely profitable and that led to aggressive expansion of acreage. These two factors have created a bearish outlook for palm oil for 2013.”

Mr. Titanic

Palm lost 2.2 percent to 2,417 ringgit ($779) a ton on the Bursa Malaysia Derivatives, a unit of Bursa Malaysia, today for the lowest close in five weeks. Futures are 0.9 percent lower this year. Mistry, who earned the nickname Mr. Titanic after he correctly compared vegetable oil prices to the ill-fated liner in 1998, is scheduled to speak March 6 at the Palm and Lauric Oils Conference & Exhibition. A third year of losses in 2013 would be the worst run since at least 1996.

Futures had been forecast to rally to 2,800 ringgit a ton by the end of March as demand rebounded and record stockpiles dropped, according to the median of 13 estimates in a Bloomberg survey published on Jan. 22. The stockpiles held around the all-time high in January as output, at 1.6 million tons, was 24 percent higher than in the same month last year, according to data from the Malaysian Palm Oil Board.

Malaysia, which introduced duty-free shipments from Jan. 1 to clear the holdings, will boost the tariff to 4.5 percent next month, potentially limiting sales. India, the largest cooking oil consumer after China, imposed a 2.5 percent import tax on palm and may increase that in the nation’s budget on Feb. 28, according to the Solvent Extractors Association.

‘Mini Crash’

“Production is slightly outpacing demand by 1 percent to 2 percent, so stock inventory will remain high, pressuring prices,” said Chris de Lavigne, global vice president of consulting at Frost & Sullivan, who’s also scheduled to speak at the Kuala Lumpur conference. “If coupled with a bumpy economy, then we could see another mini crash in prices.”

Palm output in Malaysia will total 18.9 million tons in 2013, matching the biggest-ever crop in 2011, the Malaysian Palm Oil Board forecasts. Indonesia may harvest a record 30 million tons as more trees mature, Derom Bangun, chairman of that nation’s board, said in Jakarta on Feb. 18. Bangun is also scheduled to speak at the conference.

Global palm stockpiles will climb to a record 7.203 million tons this season, buttressed by the highest-ever output of 53.3 million tons, the USDA predicts. While holdings in Malaysia peaked at 2.63 million tons in December and fell 1.9 percent last month, Ben Santoso, an analyst at DBS Vickers Securities Pte in Singapore, forecasts that they are likely to stay above 2 million tons in 2013. Last year, they averaged 2.1 million tons, the highest ever, according to data compiled by Bloomberg.

Annual Losses

Palm will decline 2.8 percent to 2,350 ringgit a ton by the end of June, according to the median of 10 estimates from analysts and traders compiled by Bloomberg. The price slumped 23 percent last year following a 16 percent drop in 2011.

To try to spur a decline in the stockpiles, Malaysia’s government cut taxes on exports, replacing a 23 percent tariff from Jan. 1 with a sliding scale from 4.5 percent to 8.5 percent. With prices below the threshold that triggers the lowest rate, shipments in January and this month were duty-free. Exports climbed 4.6 percent to 1,153,852 tons in the first 25 days of February from the same period in January, said Intertek.

Palm stockpiles will be reduced on “strong” demand for biofuels and food, James Fry, chairman of Oxford, England-based LMC International Ltd., said in an e-mailed response to questions from Bloomberg. He declined to elaborate on his views before his presentation at the event in Kuala Lumpur next week.

Ofon’s Outlook

While palm may bottom in the second quarter, averaging 2,500 ringgit a ton, prices will probably rally to 2,750 ringgit in the third quarter and 2,900 ringgit in the final three months, Abah Ofon, a Singapore-based analyst at Standard Chartered Plc, said in a report on Feb. 5. Faster economic growth in China and India, the largest buyers, will boost demand, Ofon wrote, linking rising per-capita incomes to increased palm consumption.

Growth in China, the second-largest economy, will speed up to 8.1 percent in 2013 from 7.8 percent, according to the median of forecasts tracked by Bloomberg. Palm demand in China will gain 7.9 percent to 6.3 million tons in 2012-2013, more than double the level in 2002-2003, according to the USDA. Inventory at ports in China totaled 1.09 million tons, 30,000 tons less than at the start of the month, said Feb. 19.

Malaysia will extend nationwide a program to use a 5 percent palm blend in biodiesel and introduce a 10 percent blend, according to Plantation Industries and Commodities Minister Bernard Dompok. In Indonesia, a government plan to raise blending this year may require 2 million tons of palm, Deputy Trade Minister Bayu Krisnamurthi said in a mobile-phone text message Feb. 18. A record 5.6 million tons was used for fuel in 2012, according to Oil World, a Hamburg-based research company.

Palm’s Discount

Palm’s discount to gasoil, a so-called middle distillate comparable with diesel, was $181.66 a ton today versus a five-year average that shows the tropical oil at a premium of $61.21, according to data compiled by Bloomberg.

In the U.S., farmers will boost soybean planting this year, taking production to an all-time high of 3.4 billion bushels, and doubling the country’s inventories by Aug. 31, 2014 to 250 million bushels, the USDA said on Feb. 22. Global production will rebound 13 percent to 269 million tons in 2012-2013, led by the biggest-ever harvests in Brazil and Argentina, USDA data show. Soybeans, which peaked at $17.89 a bushel in Chicago in September, traded at $14.29 today.

Corn prices will plunge 33 percent and soybeans will drop 27 percent this year as U.S. harvests expand to the biggest ever, according to Glauber, the USDA chief economist. Reserves of the crops should be rebuilt, he said at the agency’s annual outlook forum in Arlington, Virginia on Feb. 21.

Global food costs as tracked by the United Nations’ Rome-based Food & Agriculture Organization were unchanged in January after dropping in the preceding three months. The agency’s 55-item World Food Price Index fell 0.5 percent last year after declining 5.6 percent in 2011.

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