Energy Prices ‘Create a Floor’ for Palm Oil

Palm oil is increasingly being supported by energy prices as demand for biofuels rises, James Fry, managing director of LMC International, said today.

“Biofuels have unwittingly transformed vegetable oil prices into part of the energy market,” he said, according to an e-mailed version of a presentation in Kuala Lumpur. “Energy prices today create a floor to the vegetable oil price.”

The price of palm oil may drop as low as RM2,400 (US$737) a ton if Brent crude drops below US$70 a barrel, Fry said on March 10. Futures may soar to RM2,950 if Malaysian stockpiles reach 1.25 million tons and crude trades at US$75, Fry said on Dec. 4.

Palm oil for June delivery on the Malaysia Derivatives Exchange dropped for the first time in three days, falling 0.8 per cent to RM2,536 a ton at the 12:30 pm trading break in Kuala Lumpur.

Crude oil in New York rose 5.5 per cent in the first quarter, after a 12 per cent surge in the fourth quarter, helping lift palm oil by 20 per cent over the six-month period. Crude lost 0.4 per cent to US$83.41 a barrel, dropping for the first day in four.

“If vegetable oils are cheap enough, no subsidy is needed to persuade people to use them as a fuel,” Fry said today.

Under the European Union’s Renewable Energy Directive in June last year, all 27 member states are obliged to meet 5.75 per cent of their road transport fuel needs using renewable sources like biofuels and hydrogen by this year, rising to 10 per cent by 2020.

Malaysia, the second-largest palm oil producer, will make it compulsory for all vehicles to use biofuel blended from the commodity starting from June 2011.

Palm oil stockpiles in Malaysia were 932,970 tons at the end of February, according to Malaysian Palm Oil Board data. — Bloomberg

Source : Business Times

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