Palm oil prices 'may not recover before 2003'

Palm oil prices 'may not recover before 2003'

KUALA LUMPUR (Dow Jones): The bearishness in the palm oil
market is far from over and any meaningful recovery can't be
expected before the end of 2002, traders and industry experts
say.

Participants at Commex Malaysia's Palm and Lauric Oils
Conference 2001-02 were unanimous that production will be
substantially higher this year. And if new markets are not found,
prices could drop further than the current low levels.

"I don't expect much of change from now. We will be lucky if
the (crude palm oil) price averages 750 ringgit (US$197) a metric
ton this year," said P. N. Agarwal, managing director of Premium
Vegetable Oils Bhd. in Kuala Lumpur.

Crude palm oil futures on the Commodity and Monetary Exchange
of Malaysia closed lower Friday amid bearish forecasts emerging
from the seminar and fears that a weaker rupiah could make
Indonesian oil more competitive on the international market.

The benchmark May CPO contract closed at 813 ringgit/ton, down
5 ringgit/ton from Thursday after falling from an intra-day high
of 832 ringgit/ton. Earlier in the day, the contract touched 803
ringgit/ton.

Despite intervention by Bank Indonesia, the rupiah plunged to
a 29-month low Friday with the dollar rising to Rp 1 0,140 before
closing at Rp 10,090, up from Rp 9,930 Thursday.

According to Derom Bangun, chairman of the Indonesian Palm Oil
Producers' Association, or Gapki, palm oil prices will be little
changed this year, with crude palm oil ranging between $220/ton
to $260/ton, CIF Rotterdam.

"The highest price can be expected in 2004, and a significant
increase may take place in 2003. From March 2001 to March 2002,
the market will still be discouraged by the present bearish
sentiment," he said.

"Overall the technical picture (for all vegetable oils) is
very bearish. Prices could, at best, move sideways", said Jim
Wyckoff, a technical analyst and president of Jim Wyckoff
Enterprises in the U.S.

Malaysia's efforts to support palm oil prices may continue for
a while, but prices will fall again when production picks up in
April, said Dorab E. Mistry, director, Godrej International Ltd.
in London. Godrej is a large consumer of palm oil.

Mistry said he expects the third-month CPO futures contract to
remain within 850 ringgit/ton for the rest of the year.

Agarwal added the ongoing price support undertaken by the
Malaysian government may not be sustainable in the long run. "If
unexpected factors don't come into play, prices will drop
further," he said.

Malaysia's government has been trying to support the market
through a combination of efforts to find alternative uses for
palm oil as well as government-induced buying on the open market.

Deputy Minister for Primary Industries Anifah Haji Aman said
Thursday that the government would aggressively push ahead with a
plan to convert 500,000 tons of crude palm oil into industrial
fuel.

The government has set aside 500 million ringgit to be
distributed among producers to encourage them to replant older
estates and cut immediate supply. The plan is to give 1,000
ringgit for every hectare replanted.

Replanting brings down immediate production levels, and the
moves are part of the government's efforts to reduce the overhang
of palm oil stocks in the country.

In recent days, Commex traders have also noted increased
buying interest from state-controlled Federal Land Development
Authority, or Felda which itself is the largest producer of palm
oil in the country.

"Things look unsustainable if the current low price is not
corrected," said Yusof Basiron, director general of the
government-run Malaysian Palm Oil Board. However, he added that
if the replanting is taken up seriously, production could be
reduced by about 200,000 tons a month.

Mistry said he expects Malaysian CPO production to hit a
record 12 million tons this year, while Indonesia's production is
likely to touch eight million tons, also a record. Malaysia
produced 10.8 million tons last year while Indonesian production
was around 6.5 million tons.

He said Malaysian palm oil stocks may hit 1.8 million tons by
November 2001. Malaysia ended 2000 with a carryover stock level
of 1.4 million tons.

Although other forecasts are much less aggressive, indications
are that production will be much higher this year, despite the
government's replanting initiative.

The Malaysian government has said it expects production to hit
11.2 million tons while the Malaysian Palm Oil Association's
estimate says it could be nearly 11.7 million tons. Similarly,
Gapki in Indonesia has projected production around 7.2 million
tons this year.

To make matters worse, India, the largest buyer of palm oil,
has raised the import duty on vegetable oils making palm oil less
competitive compared with soybean oil.

On Feb. 28, India raised the import duty on all refined oils
to 85 percent and all crude oils to 75 percent. Crude and refined
soybean oil will, however, carry a lower duty of 45 percent under
a World Trade Organization pact India agreed upon with the United
States.

Mistry said there could be yet another upward revision in
Indian taxes later this year. Even if that increase is less
significant, it won't bode well for prices.

"This year is going to be bearish because you can't
artificially support the market," said Hari Selvanathan,
president of PT Agro Indomas in Indonesia adding he expects spot-
month CPO prices to drop to 600 ringgit/ton this year, FOB
Malaysian ports.