In the coming months, prices could dip to MYR 1,400 levels

Gargi Shah

Mumbai, Sept 21

Easing of Malaysian palm oil prices have started impacting local prices. Local refiners have dropped the price of refined palm oil by Rs 2-8 per 10 kg.

India is a major importer of palm oil. Though the country has nearly completed its festive buying, the fall in international prices is expected to impact sentiment in the local market.

Malaysian crude palm oil prices fell on Wednesday by 34 Malaysian ringgit (MYR) a tonne to MYR 1,528 and slightly edged up on Thursday. The prices of palm oil had peaked at MYR 1,720 in August.

The price weakness is mainly derived from the expectations of high carryover stocks, above 18 lakh tonnes, in the current month, higher than 16.8 lakh tonnes in August.

Higher production combined with declining exports will lead to higher stocks in Malaysian inventories, said Mr A. Ramamurthy of A.R. Agro Feeds and Farms in Hyderabad, a broker of palm oil. Malaysian exports are expected to fall by nearly 7.8 per cent on account of lower demand from India and Islamic countries, where festival buying has been nearly complete.

Also, with approaching Indian harvest season and Chinese winter, there is unlikely to any rise in the demand in the near term.

Mr Ramamurthy said in the coming months, he would not be surprised to see prices going down to MYR 1,400 levels.

Importantly, long liquidation in the energy sector has taken off the premium hovering over palm oil prices on an expected demand from the bio-diesel industry.

When crude oil prices peaked to a record of $78.40 a barrel in New York in July this year, it made bio-fuel more attractive. However, there is concern over the real demand from the bio-diesel sector, as it has strong buying potential when the new plants come on stream.

CPO was in an overbought position when the prices ruled around MYR 1,675 after which it corrected over MYR 200 to meet the current levels.

CPO is in an oversold condition, said Mr Gnanasekar, Commtrendz Risk Management Services.

(This article was published in the Business Line print edition dated September 22, 2006)
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