Palm oil heading for $300 per ton in European trade

Palm oil heading for $300 per ton in European trade

LONDON (Reuters): As palm oil prices continued to fall on Wednesday morning, European traders said they could be heading for $300 a ton, a level not seen since the mid-1980s.

Crude palm oil started the day in Europe at $335 a ton for July and August/September and $337.50 for October/December, around $5 to $10 a ton down from Tuesday's close.

Prices have now come down by some $180 a ton in the past year, and traders said they could not see a bottom to the market at the moment.

"I think we will see Chicago soybeans hit 400 cents a bushel, and soy oil 15 cents a lb, which makes $300 a ton a possibility for crude palm oil," said one trader.

"People have tried to forecast support levels and but each one has been past and the market just keeps on going down," said another.

The European market was depressed by overnight losses in Chicago futures and a report by crop forecaster Ivan Wong putting palm oil stocks in Malaysia, the world's biggest producer, at over one million tonnes.

On the U.S. market a combination of good crop growing conditions in the Midwest and fund selling took soybean futures to a 27-year low of 413-3/4 cents for the July contract on Tuesday and July soy oil to a 12-year low of 15.36 cents.

Wong in his latest report estimated that local palm oil output was 962,000 tons in June, down 4.5 percent from May. But stocks were projected to increase from 967,721 tons at end-May to 1.06 million tons at the end of last month.

With production in Malaysia rising and Indonesia -- the second largest producer of palm oil -- again active in the market after cutting export duties last Friday, traders do not see much hope an improvement in prices over the next two years.

"Indonesia is fast catching up with Malaysia in palm oil output and barring some kind of major disaster we are looking at palm oil prices in the $300 to $350 range over the next two years at least," said one trader.

However, providing world prices remained above the cost of production, they could not see producers cutting back output.

"While plantations in Malaysian and Indonesia keep on making money they won't cut back production and I think there is a long way to go before we reach that level," said a trader.

The more immediate danger for the market was the possibility of defaults as buyers tried to dump more expensive contracts to take advantage of lower prices.

If a buyer defaults on a contract there is little sellers can do on the international vegetable oil market, where business is carried out by telephone, telex, fax and e-mail.

"All you can hope is that your buyer will play the game. Most will, but there are always one or two who won't and that is where the problems could come from for some people," said a trader.

Any hope of large buying orders from China seem to have disappeared. Traders have been waiting for Beijing to issue new import quotas for edible oil.

"All they have to do is keeping issuing small licences for imports, which won't effect prices in anyway," said a trader. "After all, they do not owe the market any favors."