The Hindu Business Line : Economic crisis to hit veg oil trade: Mistry

Mumbai, March 12 Hit by the global economic slowdown, the vegetable oil industry is staring at a bleak future with the world consumption expected to grow by just 2.5 million tonnes in the oil year starting November 2009, against the growth of 4.5 mt in the same period last year. The supply may grow 4.7 mt against 6 mt last year.

According to a paper on “Palm Oil Price Outlook 2009”, presented by Mr Dorab E. Mistry, Director of Godrej International, at the meet ‘POC 2009’, organised by Bursa Malaysia, so far in 2009, the economic news has been grim and things are likely to keep getting worse.

“My estimate is that world consumption of vegetable oil as food will expand only by 2 mt at best. A lot will depend on how bad and how ugly things get over the next few months,” he added.

The IMF is severely behind the curve and has been hopelessly optimistic in its estimates of overall world growth in 2009. Yet even the IMF has now conceded that in 2009, the world as a whole will record a small fall in production and a “dramatic” collapse in trade, he added.

On bio-diesel, he said, if crude oil prices climb to $50-60 a barrel, world bio-diesel demand may expand by 5,00,000 tonnes in 2008-09.

Price forecast

Palm oil stocks for the next few months will tighten and may help palm oil prices. Mr Mistry expects BMD CPO futures over the next few weeks to cross 2,000 ringgits and they may even briefly challenge the 2,100 level.

“I am estimating that from August onwards we shall see a very good uptick in CPO production. That is why I am afraid my prognosis is that BMD futures will only get to 2,100 ringgits at best,” he said.

Beyond April and May, palm may become uncompetitive against South American soya oil and will lose market share.

For the second half of the year, Mr Mistry expects palm oil CPO prices to come under pressure both from soya oil and also from higher production and weaker demand.

“My range for CPO prices from now until October is 2,100-1,500 ringgits,” he added. In dollar terms, RBD olein is likely to go down and challenge $500 f.o.b. or lower.

“World trade is shrinking and credit availability is scarce. Output is falling, prices are falling and there is a very real threat of deflation. In these troubled times, it may be instructive to read the history of the years 1929 to 1933,” he said.

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