Malaysian palm futures to weaken in H2 2009 -Mistry

KUALA LUMPUR, March 12 (Reuters) - Malaysian palm oil futures may come under pressure in the second half of 2009 on weaker soyoil prices as well as an uptick in output from August and slower shipments, a top industry analyst said on Thursday.

But for the moment, palm prices could cross 2,000 ringgit ($541.4) per tonne and test the 2,100 ringgit level in the next few weeks as stock levels fall in top producers Malaysia and Indonesia, said Dorab Mistry, whose views are closely followed by the market.

Crude palm oil futures on the Bursa Malaysia Derivatives Exchange closed off 9-week highs at 1,980 ringgit on Wednesday. [POI/]

"I am estimating from August onwards, we shall see a very good uptick in crude palm oil production. That is why I am afraid my prognosis is that palm oil futures will only get to 2,100 ringgit at best," Mistry told a palm industry meeting in the Malaysian capital.

"For the second half of the year, I expect palm oil prices to come under pressure from soyoil and also from bigger production and weaker demand."

Malaysian crude palm oil stocks fell 15 percent to a 16-month low in February, a bigger than expected drop, as production of the vegetable oil declined faster than the drop in exports, data showed on Wednesday. [ID:nKLR357078]

Traders normally expect a seasonal uptick in production by September and stocks are largely seen to swell again.

Mistry, head of vegetable oils trading with Indian conglomerate Godrej, said the price of palm oil had done well in recent months due to strong exports but this had eroded its competitive advantage over rival soyoil.

"I fully expect the price of RBD palm olein to come very close and temporarily to exceed the price of crude degummed soyoil," he said.

"Beyond April and May, palm will become uncompetitive against South American soy oil and will lose market share. Palm is doing so well on exports that palm will need to push demand away towards soy oil and that will be done by price."

Crude palm oil futures KPOc1 have jumped 23 percent since January, while U.S. soyoil BOc1 is down 7 percent, narrowing the spread between the two contracts to below $150 a tonne, one-third the recent peak spread of last August.

In Europe, palm oil is trading at a 9 percent premium to soy oil, reversing the 2.5 percent discount of early January.

INDIA DEMAND SHINES

Although most vegetable oil consumption, including palm oil, could weaken around the world, India's demand would increase, thanks to zero duties for crude palm and sunflower oil, and low import duties for other soft oils, such as soyoil.

"Indian consumption will expand by half-a-million tonnes," Mistry said. "Import duty on palm products is unlikely to be imposed or increased until a new government is in office and that means not until the end of June."

India, the second largest vegetable oil importer, goes to the polls in April and May. The South Asian country imports roughly half of the vegetable oils it consumes annually. It buys refined palm oil from Malaysia and crude palm oil from Indonesia as well as soyoil from Brazil and Argentina.

Total Indian consumption will stand at 13.5 million tonnes in the oil marketing year starting in November, up from 13 million in the last oil year.

Palm oil demand will increase 11.2 percent to 5.66 million tonnes in the current oil year, Mistry said, while soyoil consumption will fall 4.8 percent to 2 million, thanks to the higher duties. ($1=3.694 Malaysian Ringgit) (Reporting by Niluksi Koswanage and Naveen Thukral; Editing by Clarence Fernandez)