In H1 this year, palm oil could rise to 2,500 ringgit/tonne

Demand will outstrip supply in the first half this year and until July, world vegetable oil stocks, particularly palm oil, will remain tight, according to Dorab Mistry, Director, Godrej International Ltd. He was addressing the palm oil price outlook conference 2015-16 here.

He said that crude palm oil futures on Bursa Malaysia Derivatives can rise to 2,500 Malaysian ringgit a tonne between now and May, from the current level of 2,400/tonne.

“The rise will unfold as the market realises the shortfall in production as stocks look like going down to unforeseen levels in Malaysia,” he said. Current stocks are around 1.7 million tonnes.

Stating that the forecast was based on the assumption that Brent crude will trade during the year in the $50-75 a barrel band, Mistry said that the drop in the price of crude oil and related energies has hurt Malaysia; and with the possibility of the ringgit falling further, he put a target price of $725 a tonne for refined palmolein.

According to Mistry, production will pick up after July and prices will begin to decline. Crude palm oil may even fall to 2,100 ringgit a tonne. Refined olein could drop to $600 by December.

Mistry based his argument on certain data that suggested that in 2013-14, incremental demand was 5.2 million tonnes while incremental supply was higher at 7.5 mt, suggesting an excess of 2.3 mt. In 2014-15, he saw the increase in supply at 3.1 mt and demand at 3.5 mt. However, he failed to explain what happened to the surplus in 2013-14.

Taking a bearish view of the world vegetable oil market and providing a different perspective, James Fry of London-based LMC International, a consultancy, said crude palm oil prices in the first half of the year will be at ringgit 2,260 or $625 a ton with Brent crude ruling at $60. In the second half, palm oil will fall to 1,770 or $485 .

Suggesting that crude prices have underpinned the oil palm sector, he said that high prices generated investment in new capacity which took years to be on stream; but once there, it is hard to switch off. “The challenge to palm oil producers is how to respond to lower crude prices,” he said.

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