Bearish outlook for KL palm oil prices

Bearish outlook for KL palm oil prices

Hazlin Hassan, Agence France-Presse, Kuala Lumpur

Crude palm oil (CPO) prices on Malaysia's Derivatives Exchange are likely to drop this year on weak demand after an uptrend for the whole of 2002, industry experts said on Wednesday.

Factoring in a U.S.-led attack on Iraq, the average price for the year would likely be 1,365 ringgit (US$359.2) a ton, said Yusof Basiron, chairman of the panel discussion at an international palm and lauric oils conference here.

The CPO market peaked at 1,695 ringgit at the end of December and prices have been dropping steadily since with average prices for March at 1,525.

CPO is likely to trade between 1,300 ringgit ($342) and 1,500 ringgit a ton on Malaysia's Derivatives Exchange this year and reach a possible low of 1,100 ringgit due to the weak demand, Yusof said.

Experts said the weak demand was due to surplus repassed stocks in China and soya bean production in South America returning to normal after a drought.

A war in Iraq could hurt prices due to a hike in insurance charges and delays in shipments to the Middle East and Europe, delegates were told.

Thomas Mielke, editor of the Hamburg-based newsletter Oil World, said, however, CPO prices could rally in the second quarter of 2003.

"We expect a temporary recovery of palm oil prices for the April-June quarter, to 1,600 or 1,650 as a correction to the previous slowdown in January to early March," he told AFP.

Mielke attributed this to high demand in June and low production figures.

Prices would weaken for the rest of 2003 and 2004, provided weather conditions are favorable but the decline would be moderate as supply would be at a low level, he said.

However Dorab Mistry, director of India-based Godrej International Ltd., said prices were likely to fall further.

"We are entering a new phase of weak demand and more than adequate supply which would bring prices down," he told AFP, adding that the long-term average price of CPO would range between 1,200 to 1,400 ringgit.

Prices would bottom out at 1,100 ringgit and spend more time between 1,100 to 1,300 rather than between 1,300 and 1,500, he said predicting the return of a bull market in two years.

A Malaysian-based planter, however, made a friendlier forecast for the market.

Carl Bek-Nielson, vice-chairman of United Plantations Berhad, a listed company on the stock exchanges of Kuala Lumpur and Copenhagen, said the market would be bullish over the next three to four months and that market prices would reach a high of 1,715 ringgit.

But he expects a bearish market to appear towards the latter part of 2003 and early 2004.

Some 1,200 participants from 40 countries attended the two-day conference.

Malaysia's key crude palm oil buyers are India, Pakistan, China and the European Union, which account for 70 percent of the country's exports.

Malaysia is the world's largest palm oil producer, accounting for about half of global output.

According to government figures, the country produced 11.9 million tons last year, of which 10.8 million tons worth 19.6 billion were exported.

Primary Industries Minister, Lim Keng Yaik had said the country is expected to produce 12 million tons of palm oil in 2003.