Palm Oil Seen Held Back by Mistry as Crop Recovers From El Nino

  • Futures may slip to 2,500 ringgit as supply rebounds from July
  • Higher soybean oil will underpin palm prices: Dorab Mistry

Palm oil may extend a decline from a two-year high as global production recovers faster than anticipated from a drought caused by El Nino, according to Godrej International Ltd.’s Dorab Mistry.

Prices may slide to 2,500 ringgit ($613) a metric ton with a strong recovery in output from July and as stockpiles build up, Mistry said in remarks prepared for a conference on Thursday in Hyderabad, India. Futures may trade between 2,600 ringgit and 2,800 ringgit between now and July, he said.

Palm oil, used to make everything from cookies to cosmetics and biofuel, rallied to 2,793 ringgit in March, the highest since 2014, as the strongest El Nino in nearly two decades hurt production in Indonesia and Malaysia. Together the two countries account for about 85 percent of global supplies. Futures in Kuala Lumpur have since retreated 9.8 percent to close at 2,519 ringgit on Thursday on signs of a recovery in production.

“Palm oil will need to be competitive to regain its lost market share,” Mistry said. “From July, as we witness a strong recovery in production and as stocks build up, we may see CPO prices slip further to 2,500 ringgit but I do not expect further weakness. Higher prices of soya oil will underpin palm prices.”

Recovering Output

Production in Malaysia, the world’s second-largest grower, will decline to between 18.4 and 18.8 million tons in 2016, Mistry said. In March, he forecast output to be “well-below” 19 million tons and predicted global palm oil production will face a shortfall of 3 million tons.

"Seeing the better-than-expected recovery in production, I am now reducing the shortfall from 3 million tons to 2.5 million tons -- 1.5 million in Malaysia and 1 million in Indonesia," said Mistry. While production in top grower Indonesia has been disappointing between March and May, a good recovery is expected in the second half, he said.

Weak food demand among the world’s top buyers and lower crude oil prices, that’s pushed up costs of biodiesel subsidies, are among the key reasons crimping demand for palm oil, Mistry said. While the appetite for palm oil in China fell after the government released rapeseed oil reserves, the El Nino-induced drought has weakened consumption in India, he said. A surge in soybean crushing, particularly in China, led to the rival edible oil grabbing market share from palm oil, he said.

"Demand has been softer than expected and this is the one key reason why prices did not reach my forecast of 3,000 ringgit," Mistry said. “Palm oil prices were driven by production fears from February to April. From now the driver will be demand.”

  • India’s edible oil imports seen at 15.2 million tons in 2015-16 vs 15.6 million tons estimated in March
  • India’s 2015-16 palm oil imports estimate lowered to 9.05 million tons from 9.75 million tons predicted in March
  • Global food demand for cooking oils seen tempered by higher prices and a slow economy
  • The gap between incremental supply and demand will be narrower at 2.7 million in 2015-16, compared with near-record 4.3 million tons initially anticipated
  • FOB soybean oil prices in Argentina will likely ease to $680 a ton from $720 now before rising to $730-$770 a ton
  • FOB refined, bleached, deodorized palm olein seen trading between $650 a ton and $700 a ton until July
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