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Palm prices to drop as Indonesia lags biodiesel targetsFriday, June 27, 2014 > 09:21:34
Palm oil prices could drop to between 2,300-2,500 ringgit per tonne over the next few weeks, missing an earlier forecast by about 13 percent given Indonesia's disappointing uptake of palm-based biodiesel, leading analyst Dorab Mistry said on Thursday.
Benchmark palm prices were initially expected to trade between 2,600 ringgit to 2,900 ringgit ($810-$900), or an average of 2,750 ringgit, over July to October in the absence of a crop damaging El Nino weather pattern. "Why have palm oil prices disappointed? In a nutshell - the failure of Indonesia to live up to its commitment for use of palm biodiesel in transport fuels," Mistry said.
Government officials and analysts say Indonesia is set to miss its ambitious targets on biodiesel consumption this year due to logistical and infrastructure problems.
Mistry slashed his global biodiesel demand growth forecast by half to 1.5 million tonnes for the year to September.
"I believe Bursa Malaysia Derivatives futures on the third month should trade for the next few weeks in a range of 2,300 to 2,500 ringgit," Mistry said at a palm oil seminar in Mumbai.
While demand will be robust at the lower end, a rise to near 2,500 ringgit could curb interest and push up Malaysian stocks to a peak of 2.5 million tonnes by November, Mistry said, which would be the highest since January last year. Palm prices, however, may rise to 2,600 ringgit if the current dry weather drags on beyond the next couple of weeks, and even hit 2,800 ringgit depending on the length and severity of El Nino, he added. El Nino, the Spanish word for boy, is a warming of sea-surface temperatures in the Pacific that can cause floods in parts of the world but trigger droughts in other regions, including Southeast Asia, Australia and parts of Africa.
Benchmark Malaysian palm futures surged to a more than one-year peak of 2,916 ringgit in March as dryness scorched plantations across top producers Indonesia and Malaysia and on fears El Nino would develop from June or July. Prices have slipped more than 15 percent since then to 2,471 ringgit as fears of an El Nino hurting crops have eased.
Production of palm oil in Indonesia and Malaysia will likely climb faster this year in the event of a moderate El Nino, said Mistry, who heads the vegetable oil trading arm at India's Godrej Industries.
"If the El Nino turns out to be mild and delayed, as many weathermen are predicting of late, palm oil production will turn out to be better than my earlier estimates," he said.
Mistry raised his forecasts for Malaysia's output to between 19.7-19.9 million tonnes this year, from an earlier estimate of 19.5-19.7 million tonnes. He retained his outlook for Indonesia's production at 30.5 million tonnes.
While he kept his estimate for a 6.8 million tonnes increase in global oilseed supplies unchanged, he lowered his forecast for growth in global demand for edible oils to 5.0 million tonnes from 6.5 million tonnes for the year to September. This would weigh on palm prices, which should take an additional hit if India - the world's top cooking oil importer - hikes duties on refined edible oil imports to protect its domestic oilseed processing industry.
"Perhaps around September we must expect the Indian government to raise the import duty on refined oils so as to put the beleaguered Indian refining industry and the Indian oleochemical industry on a level playing field," Mistry said. Official sources told Reuters earlier this year that concerns over inflation would prevent Prime Minister Narendra Modi's government from acting quickly on import duties and that a hike was unlikely before the budget in July.