Palm oil set for strong bull run in 2002: Analysts

Palm oil set for strong bull run in 2002: Analysts

Denny Kurien, Dow Jones, Kuala Lumpur

After staging a recovery earlier this year following a
prolonged slump, palm oil is set for a strong bull run in 2002,
as a pickup in demand is expected to coincide with a cyclical
drop in global edible oil production.

The commodity could really take off, industry participants and
analysts say, if China fulfills its obligations as a new member
of the World Trade Organization and boosts its import quota for
palm oil next year.

"Palm would enjoy the cherry cocktail of lower production and
lower competition from bean oil," said Dorab Mistry, director of
India-based Godrej International Ltd. and a leading analyst on
palm oil. "It's quite possible that the markets will display
their usual irrational exuberance and rush toward 1,500 ringgit
(US$394.7) a ton before sanity reverts," he added..

The benchmark February palm oil on the Malaysia Derivative
Exchange was trading at 1,135 ringgit a metric ton around 0700
GMT (2 p.m. Jakarta time) Thursday. It hit a low so far this year
of 695 ringgit per ton in February.

Other analysts agree that palm oil's recovery is well on track
and could go on for another two to three years.

In a report released two weeks ago, J.P. Morgan Chase in Kuala
Lumpur forecast crude palm oil, or CPO, prices to average 1,330
ringggit per ton in 2002 and 1,444 ringgit per ton in 2003.

Chetan Parikh, chief trader at Adani Global Pte. Ltd. in
Singapore, said he expects CPO to average 1,350 ringgit per ton
next year and trade between 1,000 ringgit and 1,700 ringgit.

"The outlook is very bullish for next year," Parikh said.

China's entry into the WTO will likely be the most significant
factor affecting the edible oil industry's fortunes next year,
traders say. When it joined the WTO, China agreed to raise its
import quota for palm oil to 2.4 million metric tons in 2002 from
an estimated 1.5 million tons this year. It also promised to
gradually phase out the quotas over a five-year period ending
2005.

"Should China play the game by the rules, CPO futures are
likely to scale 1,600 ringgit by March 2002," Godrej
International's Mistry said, meaning China would have to issue
all the quota levels it has agreed to in the first quarter of
2002. China could even replace India as the world's top palm oil
importer, he added.

Parikh at Adani Global said rising prices are expected to
change the purchasing patterns of big buyers in countries like
India, who he said have been buying on a hand-to-mouth basis. He
said the buyers will be compelled to cover forward requirements
and build up stocks, fueling prices further. His company exports
large quantities of palm oil to the Indian market.

The expected increase in demand comes at a time when edible
oil supply is in deficit. The global edible oil market is headed
for a net estimated shortfall of two million tons of oil this
year, according to Mistry.

However, palm oil production is expected to be unchanged to
slightly higher.

Derom Bangun, chairman of the Indonesian Palm Oil Producers'
Association, or Gapki, said he expects Indonesian CPO output to
rise next year from over 7.2 million tons this year. Mohd. Nafis
Daulay, chairman of the Indonesian Association of Cooking Oil
Producers, puts this year's output at 8 million tons.

Malaysian production is expected to be unchanged to a little
lower next year. Output this year is forecast around 11.7 million
tons, according to the Malaysian Palm Oil Association, an
umbrella organization of Malaysian plantation companies.

The low prices of recent years have resulted in a substantial
drop in the production of high oil-bearing seeds, analysts say.

"Low prices have done their job very successfully. As they
say, the cure for low prices is low prices," said Mistry at
Godrej International.