Palm oil’s rout is set to deepen with prices extending declines to less than 2,000 ringgit ($630) a metric ton on ample global supplies of edible oils, according to Wayne Gordon, an analyst at UBS AG.
“The overall vegetable oil sector is effectively swimming in supply, or will be swimming in supply by the time we get to the end of the year,” Singapore-based Gordon said in a phone interview. The most-active price on Bursa Malaysia Derivatives fell to 2,045 ringgit yesterday, the lowest level since October 2009. It last traded below 2,000 ringgit in March of that year.
Palm oil tumbled into a bear market last month as favorable weather in the U.S. spurred forecasts for a record crop of soybeans, which can be crushed to provide an alternative oil. Palm also slumped as demand for biofuels missed expectations, forecasts for an El Nino weather pattern, which can disrupt supplies, were scaled back, and the ringgit strengthened. Lower prices will help keep global food costs in check, while hurting earnings at growers including Kuala Lumpur-based Sime Darby Bhd.
Palm oil needs to decline by more than soybean oil to attract increased demand from India, the world’s biggest importer, according to Gordon, who’s tracked the commodity since 2009. Further losses in soy oil may weigh on palm, he said.
Palm oil ended 0.9 percent lower at 2,049 ringgit yesterday, taking losses this year to 23 percent. Soybeans fell to $10.35 a bushel in Chicago, the lowest since September 2010, while soy oil traded at 32.76 cents a pound, the lowest since March 2009. Palm oil’s discount to soyoil was at $87.48 a ton yesterday, compared with an average of $244 last year, data compiled by Bloomberg shows.
The U.S. soybean crop is expected to rise to a record 3.816 billion bushels this year, the U.S. Department of Agriculture said last week. Losses in the oilseed’s price this week came as pod counts from an annual field tour across the world’s biggest producer signaled a bumper crop. Reports from the first three days of the Pro Farmer Midwest Crop Tour showed higher tallies in Illinois, Ohio, Indiana, Iowa and South Dakota.
Malaysia, the largest palm oil producer after Indonesia, was delaying the nationwide implementation of a biodiesel mandate to the end of the year, Plantation Industries and Commodities Minister Douglas Uggah Embas said this month. Indonesia’s use of palm biodiesel in the first five months of this year is roughly the same as in the same period a year earlier, and full-year consumption won’t increase, Dorab Mistry, director at Godrej International Ltd., said in June.
Malaysia’s ringgit climbed 3.2 percent this year, Asia’s strongest performance after Indonesia’s rupiah, as the Southeast Asian country’s economy expanded at the fastest pace in six quarters in the three months to June and current-account data beat estimates. A stronger ringgit makes palm oil purchases more expensive for holders of other currencies.
Global ending stockpiles of palm oil will increase 10 percent to 8.7 million tons in 2014-2015, according to a forecast from the USDA. Indonesia and Malaysia account for about 86 percent of the world crop, with the oil crushed from fresh-fruit bunches and harvested year-round.
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Source : Bloomberg