Palm Oil May Rise to RM2,625 If Crude Price Remain Steady

Palm oil prices are likely to rise to as high as RM2,625 per tonne should crude oil trade steady at US$75 per barrel (RM253.50), says Dr James Fry, chairman of LMC International Ltd, a London-based research organisation.

“Palm oil pricing has an indirect link to crude oil eventhough its usage is very low in the global biodiesel market. There is a tight corelation in the pricing because it substitutes other vegetable oils that are being burnt as biofuel,” he told reporters after presenting his paper entitled “The Outlook for Palm Oil in the Context of Global Commodity Markets” at the International Palm Oil Congress (PIPOC) 2009 in Kuala Lumpur yesterday. “The US experience demonstrates that biodiesel demand is not synonymous with soya oil use. Likewise, European biodiesel processors do not confine themselves to rapeseed oil, despite the German government’s efforts,” he said. Substitution in biodiesel, food, animal feed and oleochemical applications plays a major role in ensuring that the prices of different vegetable oils are linked to one another. “For this reason, non-tariff trade barriers, like those proposed against palm oil in biodiesel use in the EU, act mainly as an irritant. The EU may reduce palm biodiesel imports but this will result in more palm oil usage as food ingredient,” he added.

Fry also anticipates China, the world’s biggest vegetable oils consuming country, to buy more palm oil in the next few months “as its price discount to soya oil is fairly wide now.” He said another factor that will help keep palm oil prices buoyant lie in the weakening of the US dollar. Earlier, when asked if palm oil prices are set to trade at buoyant levels from the current average of RM2,200 per tonne, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said he believes that “prices could trade rangebound for the rest of the year”. Three months ago, he had estimated this year’s palm oil output to only reach 17 million tonnes, 700,000 tonnes less than last year’s all-time high of 17.7 million tonnes. Malaysian Palm Oil Board’s latest data confirmed palm oil output to have fallen by 3.6 per cent to 12.46 million tonnes in the first nine months of this year, from 12.94 million tonnes a year ago. This lower output trend is likely to remain for the rest of the year in view of the current floods in the east coast hampering oil palm fruit harvesting and transport to the mills. Kelantan/Terengganu Meteorological Department director Azemi Daud reportedly said at least two more severe bouts of rain are forecast to hit the east coast states before January. “The velocity of the wind would determine the volume of rainfall in this part of the peninsular,” he said, adding that weather conditions are influenced by the formation of low pressure areas at the South China Sea which would bring about intermittent rains and thunderstorms. Source : Business Times by Ooi Tee Ching


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