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."