Palm oil price rally to continue next year
Palm oil price rally to continue next year
Denny Kurien, Dow Jones, Kuala Lumpur
Palm oil will continue with its bull run next year, as lower global output of edible oil makes the competitive palm oil a much sought-after alternative, traders and analysts told Dow Jones Newswires.
World stocks of edible oil will fall to critical levels next year, as production won't keep pace with rising consumption, analysts and traders said.
"There are projections that indicate 2003 stock levels (of five major types of edible oil) are likely to fall even below the critical 1997-98 levels and on top of this, you will have to provide for a further 15 percent to 20 percent increase in consumption over the (last) five years," said Victor Ngo, managing director of Josovina Commodities Bhd. in Kuala Lumpur.
"With this, there is little doubt that we should see robust prices next year. Palm oil producers are in for a bonanza in 2003," Ngo added.
There were differing views on how high prices could go next year, but analysts were unanimous about the direction of the market.
Some predict crude palm oil prices on the Malaysia Derivatives Exchange, or MDEX, could go as high as 1,900 ringgit (US$500) a metric ton at some stage next year, while an average price for the year can be anywhere between 1,400-1,600 ringggit per ton.
MDEX's benchmark January CPO futures contract closed at 1,574 ringgit per ton midday Thursday, up 24 ringgit from Wednesday's close, and almost 37 percent higher compared with 1,150 ringgit per ton at the beginning of 2002.
"Clearly the factors are bullish. So we must expect higher prices (next year)," said Dorab Mistry, London-based director of Godrej International Ltd. said. Godrej International is the trading arm of India's Godrej group, a leading manufacturer of soaps, cosmetics and edible oil.
Thomas Mielke, editor of the Hamburg-based Oil World magazine said at a recent presentation in Kuala Lumpur that MDEX CPO futures could rally to 1,800 ringgit per ton by March 2003.
The Malaysian Palm Oil Association, a grouping of plantation companies, is equally bullish.
"Prices will be pretty high in the first six months of next year," M.R.Chandran, chief executive of MPOA said. Chandran said CPO prices could rise to about 1,800 ringgit per ton by March or April next year and average about 1,400 ringgit per ton for the full year.
India and China, amongst the world's biggest importers of edible oils, will need to buy large amounts of palm oil next year to make up for the shortfall in local production and the non- availability of high oil-yielding seeds, such as rapeseed and groundnut, industry participants said.
India is expected to buy at least an extra one million tons of oil, and China another 500,000 tons in 2003, according to Josovina's Ngo. Further, normal increase in demand will take place in other markets as well, he said.
"For India, the outlook (for palm oil) is very bullish," said Chetan Parikh, chief trader at Adani Global Pte Ltd. in Singapore. He said Indian buyers have been buying on a hand-to- mouth basis because of the recent volatility in prices, which means they still have a lot of buying to do.
India's edible oil production from the winter oilseeds crop will fall 19 percent to 3.49 million tons from 4.29 million tons a year ago, the Solvent Extractors' Association of India, or SEA, said Monday.
Chinese demand is expected to grow as well. Under a World Trade Organization agreement, China will have to raise its import quota for palm oil to 2.6 million tons in 2003, up from 2.4 million tons this year.
The higher import quota along with a severe shortage of high- oil yielding seeds for crushing will push up the demand for palm oil in 2003, Oil World's Mielke says.
The decline in China's supply of rapeseed and reduced availability of cottonseed and groundnuts will be difficult or impossible to compensate with soybean crushing, considering its relatively small oil yield. This will lead to higher demand for imported edible oil in China, particularly soyoil and palm oil, he said.
World palm oil stocks are expected to further decline to a four-year low of just 3.3 million tons by the end of September 2003, Oil World's Mielke said.
MPOA's Chandran said Malaysian production will only see a marginal growth to around 12.2 million tons in 2003 compared with an expected output of 12.0 million tons this year.
Indonesia's production could go up to about 9.1 million tons from about 8.8 million tons estimated this year, he said.
Malaysia is the world's largest palm oil producer and exporter, followed by Indonesia.