Outlook – Palm Oil

Let me share key forecasts made by reputable houses on palm oil this year. In general, consensus expects CPO to trade in between RM2,400 to RM3,200.

Dorab Mistry, one the giants in this industry, projecting CPO futures to trade in the range of RM2,800 to RM3,200 range after July 2010 as current El-Nino driven hot weather may cause a production shortfall in the 2H2010. His forecasts was within palm oil’s most ‘bullish period’ that runs from the 2H2010 until 1Q2011 – represents a rise of up to 18.3% from current level. The peak soya oil flow from South America should be in the period May to August 2010 and CPO futures post July 2010 will scale new heights – in order to ration demand. He based his forecasts on crude oil trading at US$70-95 a barrel as well for the US dollar to start weakening in the 2H2010.

RHB Research says it is possible for CPO to pierce the RM3,000 level amid the current bullish momentum and it didn’t discount the fact that price may fall in the normal seasonal peak output period in the 2H2010.

Meanwhile, the Malaysian Palm Oil Board expect, palm oil production to slump to the lowest level in almost three years, draining stockpiles amid concerns that the dry weather will limit supplies in 2010. This may help extend 2009’s 57% gain in prices, which surged as demand expanded from China and India, the world’s largest consumers and importers.

Frost and Sullivan believes that supply is not keeping up with demand and this may push price to as high as RM3,500.
LMC International argues that CPO have now become ‘a part of the energy complex’ given the strong link between the vegetable oil and mineral oil prices. Energy prices today had created a floor to the vegetable oil prices and expecting CPO with a forecast of RM2,400 to RM2,600 for 2010. The fact that biofuel demand reacted much faster than food demand, in turn created a price band. Now, the world is studying vegetable oil and petroleum price differentials as the new keys to the market, in addition to the level of edible oil stocks.

ISTA Mielke GmBH forecasting a CPO trading range of RM2,400 to RM2,900 this year. The world is becoming more dependent on CPO and as such the price spread of CPO to soybean and other oils would eventually be eliminated. Palm oil is no longer the cheap, low quality oil and there is no other oil that can meet growing demand. Palm oil now accounts for 57% of world exports. It also raised concerns about the declining growth in the CPO production.