Pressure mounts on palm oil prices

Pressure mounts on palm oil prices

LONDON (Reuters): Vegetable oil prices face increasing
pressure from higher than expected production and low demand,
European traders said yesterday.

Crude palm oil was finding few buyers because European
consumers stocked up on RBD palm oil from Malaysia during the
Indonesian export ban at the beginning of the year.

"Our plants are geared to crude palm oil, but there is plenty
of RBD palm oil in Europe and it's a lot cheaper than the crude,
so we will use it," one consumer said.

As of July 21 stocks of palm oil in tanks in Rotterdam stood
at 99,622 tons, up 5,416 from the previous week.

Indonesia banned the export of crude palm oil and by-products
between the end of December and mid-April in an attempt to bring
local cooking oil prices under control after the falling rupiah
sent the market soaring.

The ban was replaced on April 22 by export duties of 40
percent for crude palm oil and 35 percent for olein. These were
increased to 60 percent for crude palm oil and 55 percent for
olein on July 10 as the falling rupiah meant local producers
continued to find it more profitable to export rather than sell
locally.

But traders expected cooking oil to become more freely
available in the Indonesian market owing to the actions of the
state commodity regulator Bulog and a pick-up in palm oil output.

Bulog has opened a tender to buy 29,000 tons of palm olein
from private companies during July and plans to buy a further
60,000 tons from state-run plantations.

"Indonesia got off to a bad start this year, but production
looks as if it will soon pick up and this, coupled with the Bulog
action, will saturate the local market," a broker said.

Traders estimate Indonesia will produce 5.1 million tons of
crude palm oil this year. About half of that will go to the local
market, leaving the rest available for export.

Traders said reports indicated that the El Nio weather
phenomenon had not hit Malaysian output as hard as expected.

In his latest report private forecaster Ivan Wong predicted an
increase of nine percent in palm oil output for July over June.
He said local palm oil production would rise to 760,000 to
765,000 tons in July, up eight to nine percent from June.

End-July stocks were seen at 735,000 to 745,000 tons compared
with the Palm Oil Registration and Licensing Authority's figure
of 694,833 tons at end-June.

"Even the Malaysians are bearish on palm oil," one trader
said.

Traders also expected mounting pressure from the U.S. soybean
crop.

"The people on the ground who grow the soybeans say they are
heading for a big crop this year," said one trader.

"Growing condition are near perfect," said another.
Soyoil prices fell in Chicago on Wednesday, with nearby contracts
finishing at 10-month lows on forecasts of good growing
conditions.

Traders said the absence of extreme heat or dryness in the
forecasts was significant because the crop was at or near its
critical pod-setting stage.

"Prices are not going fall suddenly, but with all these
factors coming together there is going to be a steady build-up of
pressure," a broker said.