Mistry Sees Palm Weakening as Prices Set for Worst Run Since ’96

Palm oil may extend a decline as supply of the most used cooking oil from Indonesia and Malaysia climbs and biodiesel demand peaks, said Dorab Mistry, director at Godrej International Ltd., signaling a third year of losses.

A rally in futures since the end of July is over and prices will drop from now, Mistry said in remarks prepared for a conference in Singapore today, without giving a forecast. Prices rebounded 9.5 percent from a three-year low of 2,137 ringgit ($656) a metric ton in July as the spread between palm and gas oil created demand for biodiesel, he said. Mistry predicted in May a drop to 2,000 ringgit from July, citing a buildup in stockpiles during the peak-production cycle.

Futures have lost 4 percent this year, extending the combined 36 percent slump in 2011 and 2012, and a third year of losses would be the worst run since at least 1996, according to data compiled by Bloomberg. Prices of the oil used in everything from candy to detergents posted the biggest monthly gain since December 2010 in August as crude oil rallied to a two-year high and a weaker ringgit boosted exports.

“I believe the rally in CPO prices has just about run its course and will face downward pressure from here,” said Mistry, who has traded vegetable oils for more than three decades. “It would not surprise me to see new lows in vegetable oil and particularly in palm and lauric oil in early January.”

Palm for delivery in November ended the morning session at 2,340 ringgit on Bursa Malaysia Derivatives in Kuala Lumpur today. The Standard & Poor’s GSCI gauge of 24 commodities jumped to a six-month high on Aug. 28, led by a rally in crude oil, soybeans, cocoa and cotton.

Peaked Markets

“Markets look like they have peaked and that the path of least resistance will be sideways to lower,” Mistry said. “This applies to grains, oilseeds, meal as well as vegetable oils. I am flagging some uncertainties with regard to demand for edible vegetable oils in countries like India which have suffered from currency degradation.”

The weakness in currencies of emerging-market economies will act as an import tax and will be disruptive for commodities demand, Mistry said. Barring any weather disruptions, palm oil is set to trade lower on a bleaker economic outlook as the U.S. Federal Reserve may taper stimulus, he said.

Global palm stockpiles will surge 21 percent to a record 9.7 million tons by the end of 2013-2014, while demand expands 4.6 percent, the least in 12 years, the U.S. Department of Agriculture estimates.

Production in Indonesia and Malaysia is expanding as the high output season begins and trees are in a more productive biological cycle, Mistry said. The new cycle is just starting and may last at least until April, he said.

Energy Correlation

The outlook for vegetable oil prices is linked to prospects for the energy market as uncertainty in Syria may lead to a spike in crude, Mistry said. Concerns over disruptions in Middle East oil exports amid conflict in Syria has pushed Brent crude oil to four weeks of gains. Use of palm oil for fuel is expected to advance 11 percent to 6.34 million tons in 2013, according to Hamburg-based research company Oil World.

“We must consider energy demand and how competitive palm and other oils are likely to be,” Mistry said. “Palm will have to expand its discount to soya oil in order to remain competitive. Winter may cloud some of this competitiveness.”

The tropical oil clouds in cooler temperatures, which leads to consumers looking for alternatives in the winter. Soybean oil, a substitute in food and fuel uses, was at a premium of about $233.68 a ton over palm oil today, compared with an average of $301.33 in the past year.

“The only factor that can make me bullish will be adverse weather,” said Mistry. “The odds are evenly poised for a weather disturbance sometime in 2014. Without such a development, I am afraid we are looking at lower prices.”

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