Palm oil will rebound from a five-year low as demand improves and record supplies of soybeans, which can be crushed to make an alternative, are absorbed, said Sime Darby Bhd. (SIME), the biggest listed producer by market value.
“Prices should bounce back by October, November,” Franki Anthony Dass, executive vice president of the Petaling Jaya, Malaysia-based company’s plantation division, said in an interview. “The bumper soybean crop will quickly drop,” said Dass, who’s been in the industry for more than 30 years.
Palm slumped into a bear market in July on swelling global supplies of edible oils, including a record soybean harvest in the U.S. Futures also dropped as demand for biofuels missed expectations and as forecasters reduced odds for the onset of an El Nino, which can disrupt supplies from Indonesia and Malaysia, the biggest producers. Standard Chartered Plc and CIMB Investment Bank Bhd. are among forecasters seeing a rebound in the oil, which is used in foods, cosmetics and fuels.
“For food and non-food usage, the versatility is for palm oil, so the demand will come back,” Dass said on Aug. 29, without giving a price forecast. The “good thing is that imports from China are growing, while India has stagnated. That is worrying. India and Pakistan must buy,” he said.
Futures on the Bursa Malaysia Derivatives, the global benchmark, retreated 27 percent this year to 1,929 ringgit ($612) a metric ton on Aug. 29. Prices dropped to 1,926 ringgit that day, the lowest level since March 2009.
While the decline below 2,000 ringgit was unexpected and “worrying,” Sime’s average cost of production in Malaysia and Indonesia is about 1,400 ringgit a ton, according to Dass. “If the CPO price is at 2,000, we still make money,” he said, using the initials for crude palm oil.
Prices risk tumbling further to approach the cost of production, according to Dorab Mistry, director at Godrej International Ltd. Private-sector estates in Malaysia and Indonesia have costs of about 1,500 ringgit to 1,600 ringgit a ton, Mistry said in e-mailed comments to Bloomberg News.
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Source : Bloomberg