The Hindu Business Line : Limited upside seen for palm oil

Kuala Lumpur March 14 Driven by a surge in bio-diesel demand in addition to the usual growth in demand for edible oil, crude palm oil (CPO) prices have rallied in recent months to new highs.

Will current high prices sustain or do CPO prices have a further upside?

A panel discussion by experts from around the world including producers, consumers and research analysts concluded that prices are generally likely to be in the 2,000-2,100 Malaysian ringgit (MYR) a tonne range rather than show a sustained spike higher or sharp decline.

The panel debated whether or not the CPO market would average MYR 2,100 a tonne during 2007.

The general belief was that the market has already factored in the bio-diesel demand and despite that, prices currently were around MYR 1,920 a tonne.

There was also general consensus that in the March-June period, the upside for the market was rather limited in view of new crop arrival pressure in major origins such as South America and India. After May, new market-making factors would come into play. For the annual average to rise to MYR 2,100 a tonne, prices in the second half of the year will have to rise to MYR 2,300-2,400, a level that was generally seen as not sustainable, some experts said.

Earlier, in his presentation on palm oil price outlook with special reference to India, Mr Dorab Mistry, London-based director of Godrej International, said that he expected CPO to comfortably hold the MYR 1,900 level and that RBD palmolein would gradually move up from its current level of $585 a tonne to reach $650-700 f.o.b. He forecast BMD CPO futures to test the target of MYR 2,200 first around July and then in the last quarter of 2007, to trade at MYR 2,200-2,400.

Energy demand is just beginning to be felt in major markets such as the US and Brazil and this phenomenon could extend to other countries such as Japan and Indonesia, he added. "Prices will clearly have to rise to ration demand."

There are two major variable factors that could decisively affect the near-term price outlook - planting in the US and the effect of last year's El Nino and the developing La Nina, he said.