Palm oil futures may drop to RM2,000 (US$573) a metric ton if inventories pick up in September as production peaks, according to Dorab Mistry, director of Godrej International Ltd.
A tight supply situation will keep the commodity between RM2,100 and RM2,300 “for the next few weeks” until the data provided guidance, Mistry said, according to a presentation prepared for delivery today in Istanbul. If prices fell, that would be a “buying opportunity,” he said.
About 90 per cent of the world’s palm oil, used in cooking and alternative fuels, is produced in Indonesia and Malaysia, where output typically peaks in the second half.
Palm oil on the Malaysia Derivatives Exchange gained 2 per cent to RM2,341 a ton, with Mistry’s forecast implying a decline of 15 per cent.
Palm oil has advanced 38 per cent this year amid speculation that drought in Argentina may curb soybean oil supplies, boosting demand for rival palm oil. The tropical commodity has also gained on higher crude oil prices and amid speculation that demand will increase as the global economy recovers.
“Based on annual usage in terms of domestic consumption and exports of almost 19 million tons, a stock level of 1.4 million tons is a must for the Malaysian palm oil industry to operate normally,” said Mistry, who has traded edible oils for more than three decades. That level “represents 25 days’ consumption,” which “is very tight,” he said.
Stockpiles in Malaysia, the second-largest producer, expanded for a second month in June, rising 2.5 per cent to 1.41 million tons, a four-month high, according to the country’s Palm Oil Board. Numbers for July are set to be announced next week.
“Should prices decline, it will be a buying opportunity,” Mistry said, according to today’s presentation, citing tight overall vegetable oils supplies. Palm oil and soybean oil are the world’s most consumed edible oils.
Mistry had forecast twice in May that palm oil may gain to RM3,000 a ton driven by a “powerful bull market,” including rising demand from India. Palm oil peaked this year at RM2,799 on May 13, before those predictions.
Godrej is one of the largest importers of edible oils into India, the biggest consumer of palm oil after China. – Bloomberg
Source : Business Times