Asian palm oil is fast closing the price gap with rival South American soyaoil in a trend set to accelerate in 2010 as supplies of palm are poised to outstrip soyaoil.
Despite expected bumper soya crops in the Americas, palm oil supply this year will exceed soyaoil, as higher biofuel mandates, soya rust disease infecting Brazilian crops and a tussle between Argentine grain farmers and the government give palm the edge.
Dry weather could curb palm oil output in top producers Indonesia and Malaysia, but traders’ projections for combined exports in 2010 stand at 33.82 million tonnes, or more than triple the soyaoil shipment estimates of research group Oilworld.
That suggests palm oil may be best placed to mop up food demand from developing Asian giants India and China, with its discount to soyaoil staying below US$75 a tonne (US$1 = RM3.34) for much of 2010, compared to an all-time high of US$300 a tonne in 2008.
“I expect palm oil to rally slightly more than soyabean oil, but I expect palm oil to remain at a discount,” Anne Frick, a US-based senior oilseeds analyst with Prudential Bache Commodities, said.
“Soyabean oil is more affected by the biofuels story while palm oil is most affected by food demand. Much of the world is still in a daily struggle to obtain enough calories and those areas are located closer to the source of palm oil.” Palm’s discount to soya hit its narrowest in nearly 10 months in February, prompting increasingly affluent key Asian consumers to shift demand to other vegetable oils, but the changing supply dynamics of soya and palm redraws that picture. Malaysian benchmark crude palm oil futures have outperformed US soyaoil for much of this year, narrowing the gap between cash South American soyaoil and Malaysia’s refined palm olein to as low as US$12.50 per tonne by March 5, traders say. The relationship between the world’s two most traded vegetable oils takes centre stage at Bursa Malaysia’s palm oil industry conference this week in the Malaysian capital attended by planters, global traders and analysts. Prospects this year for a 5 per cent decline in Malaysian palm oil output and a South American soya crop that is nearly a third larger than last year’s drove palm oil prices to perform better than soyaoil, spurring some dealers to conclude palm would trade at a premium as global demand grows. But expectations this year of soyaoil exports rising by only 2.1 per cent from 2009 and a 16 per cent increase in palm oil exports from Indonesia have prompted many to say palm oil will keep its discount – albeit a narrow one. “A lot of Indonesia’s oil palm acreage is maturing, so Indonesia’s production will more than make up for Malaysia’s shortfall,” said Martin Bek-Nielson, executive director for Malaysian listed United Plantations. Indonesia, the world’s top palm oil producer, has projected 2010 output to reach 23 million tonnes, up by nearly a tenth from 21 million last year. But the lack of reliable data often means traders focus on Malaysia’s data instead, skewing markets. Malaysia is expected to see slower output growth of 3.4 per cent to 18.1 million tonnes in 2010 and officials say even that government target might be missed because of severe El Nino weather conditions and a labour shortage. “Argentina has a different problem. The government there is under financial pressure to heavily tax soyabean and soyaoil exports, so we may see some disruptions there,” said Michael Greenall, analyst with BNP Paribas in Malaysia. Further limiting soyaoil exports is top soya exporter Argentina’s move to implement a law requiring diesel to be mixed with soya oil-based biofuel this year. – Reuters Source : Business Times]]>