The Hindu Business Line : Palm oil industry upbeat; experts foresee volatility

Prospects
More volatility in the market, some uncertainty for the bio-diesel sector forecast.
Price behaviour has changed forever as energy price is at work.

Kuala Lumpur March 13 While the entire palm oil industry is in an upbeat mood following sharp price spikes caused by spurt in demand from the bio-diesel sector and hoping the bull run would continue, experts from different segments of the industry and independent analysts sounded a note of caution.

`Highly vulnerable'

In his presentation, Mr Harald Sauthoff of Cognis forecast crude palm oil futures to average Malaysian ringgit (MYR) 1,940 a tonne, with contracts trading between the low of MYR 1,800 and high of RM 2,150 a tonne in 2007. Mr Martin Harrigton of FPG Oleochemicals in his speech said CPO prices might average MYR 2,000 a tonne during the current year.

He forecast more volatility in the market and some uncertainty for the biodiesel sector. Raising a question whether the behaviour of the market for vegetable oils and more generally for agricultural products, has changed forever in the context of expanding biofuel sector, Dr James Fry of the London-based research and consultancy LMC International, pointed out that crude palm oil was highly vulnerable to demand changes based on prices.

Stocks critical

According to his analysis, CPO stocks in Malaysia were critical and there was a strong inverse correlation between inventory and prices. In his base case forecast (assuming 1.5 million tonnes stock), Dr Fry said CPO futures prices will move up to MYR 2,000-2,200 a tonne range and average MYR 2,060 a tonne in 2007.

However, if stocks end the year 1,20,000 tonnes below the base figure of 1.5 mt, prices will average MYR 2,240, and if stocks end 1,20,000 tonnes above, then prices would average MYR 1,950 a tonne.

According Dr Fry, price behaviour has indeed changed forever because the new influence, energy price, is at work. It will not vanish and its impact extends to nearly all the crops (mainly corn, sugar), he pointed out, adding that food supplies and prices are of major political concern and a balance between food and fuel needs will have to emerge.