Bullish bets on palm oil

By Ooi Tee Ching
bt@nstp.com.my
2012/03/08

OIL palm planters are smiling again this year as price forecast gurus at the Palm and Lauric Oils Outlook Conference (POC) 2012 placed bullish bets on crude palm oil (CPO) prices.

Hamburg-based ISTA Mielke GmbH executive director Thomas Mielke highlighted that for the first time in history, drought has impacted soy bean output in the United States and Latin America at the same time.

"We're likely to see global soy bean output plunge by 20 million tonnes this year," he said.

Mielke, who is also editor of Oil World journal, said "poor weather is also hurting rapeseed yields in Ukraine and the European Union".

He then said Malaysia's palm oil production could touch 19.3 million tonnes this year compared with 18.9 million tonnes in 2011. As for Indonesia, he foresees output to expand to 25.5 million tonnes.

"I still think these rise in palm oil output will not be enough to offset shortage in soya and rape oils."

He stressed that the oil palm industry must continue its focus on yield improvement as a way to overcome limitations of arable land and water so as to retain world market leadership.

Mielke, a well-respected and authoritative vegetable oil analyst, once again, at this POC series rejected calls by green activists for a moratorium on oil palm plantings and encourage adoption of genetically modified technology.

"In order to satisfy the daily oils and fats need of an increasing global growing population, we need to plant more genetically-modified oil crops that are drought tolerant and disease resistant," he urged the 2,000-odd participants at the POC 2012.

He repeated his message to oil palm planters not to be misled by green activists' lobby to limit expansion of oil palm plantations as the world continues to face shortage of edible oils.

The conference, which traditionally focused on price forecasts for palm and coconut oils, had in the last few years, taken a more holistic approach.

Mielke then concluded that palm oil prices is likely to average at around RM3,500 per tonne this year.

LMC International Ltd chairman Dr James Fry was next to take to the stage. He said 2011 was a year of wonder for planters, which saw excellent prices and close to ideal output conditions.

He reiterated his long-held view that palm oil prices would continue to be highly influenced by petroleum prices.

Yesterday, Brent crude oil rose above US$122 (RM366) a barrel after China said it would boost energy imports this year, while concerns persist over supply risks and Iran's nuclear programme despite the country's offer for talks with major powers.

High petroleum prices translates to more demand for biofuel.

This, in turn, means better demand for CPO. On top of this, there is already strong demand for CPO in emerging markets like China and India as their big population consumes more food.

Fry forecasts the CPO price could rise as high as RM3,310 and fall as low as RM2,590 a tonne if Brent crude oil were to settle to a "realistic level" of US$86 a barrel.

"If, however, Brent crude were to go on hovering at current US$125 a barrel, CPO is likely to trade between RM3,140 and RM3,360 a tonne," he said.

Since October 2011, the Indonesian government has widened the export tax gap between CPO and refined products drastically to boost refining capacity and downstream activities. As a result, CPO and crude palm kernel oil became cheaper for downstream producers there.

Fry noted that Malaysian refiners were starting to concede global palm oil market share to Indonesia. This is pushing more palm oil stocks to Malaysia.

As a stop-gap measure, the Malaysian government has allowed duty-free CPO exports amounting to 3.6 million tonnes this year.

At the industry's leading global conference yesterday, London-based Godrej International director Dorab Mistry said CPO prices, now trading around RM3,200 a tonne, can hit RM4,000 in three months due to the threat of war and geo-political tensions in Iran, specifically at the Gulf of Hormuz.

"I'm assuming that Brent crude oil will go on trading at between US$100 and US$120 a barrel but with the threat of geo-political uncertainty in Middle East and North Africa, vegetable oils prices could climb to higher levels," he said at the POC 2012 here yesterday.

Given the high energy prices, tight palm oil stocks and rising demand, the CPO price is due to reach a new high in the next quarter.

"It is conceivable that CPO prices may test RM4,000 a tonne by June," he said.

He reckons that 2012 is a year of two halves, of which palm oil prices remains bullish on tight supply in the first half. As for the latter part of the year, Dorab said early signs of emerging drought could slash palm oil output.