Palm prices to surge as Asia chases cargoes -Mistry

KUALA LUMPUR, May 18 (Reuters) - Malaysian palm oil futures could soon surpass a key psychological level of 3,000 ringgit as Asian buyers hunger for more of the vegetable oil at a time of low stocks and weak output, a top industry analyst said on Monday.

Dorab Mistry, head of vegetable oil purchasing at Indian conglomerate Godrej International, said orders from the world's top two buyers of vegetable oils -- China and India -- were set to jump as the world economy recovers.

Palm oil supplies are dwindling in top producers Indonesia and Malaysia due to weak output arising from lack of fertiliser use when prices fell dramatically last year, coupled with volatile weather and yield stress after months of good harvests.

In addition, the top two soy exporters, the United States and Brazil are experiencing low stocks after a supply shortfall in third largest soy producer Argentina, which may result in a powerful bull market emerging for vegetable oils, said Mistry, who is based in London.

"The situation in soya is more bullish than in palm and soft oils will soon take price leadership," he said in a speech to be delivered at a regional palm oil conference in Tokyo.

"However, price-conscious markets like India will chase palm and therefore I expect Bursa Malaysia crude palm oil futures to exceed 3,000 ringgit (per tonne) very quickly," he said.

Traders consider this figure a key resistance level after prices exceeded it last year before falling back to just over 1,000 ringgit, from which they have since struggled to recover.

Benchmark Malaysian prices on Friday were just 12.7 percent below 3,000 ringgit level KPOc3. Malaysian refined palm olein FOB traded at $830 per tonne for June compared to European soyoil at $886 in Rotterdam last week, Reuters data showed.

China will buy more vegetable oil in the second half than the first as its 4 trillion yuan stimulus package has revived some consumption and current total shipments are 24 percent behind imports of 8.1 million tonnes last year, Mistry said.

But India will now drive palm and soyoil demand rather than China after the government scrapped import taxes for edible oils, starting with palm oil, last year. Mistry said purchases would hit 8.5 million tonnes for the oil year ending Oct. 2009.

"India's low per capita consumption was artificially suppressed by high import duties and now that the heavy burden has been lifted, it has come into its own," Mistry said, pegging demand at 1.4 kilos per person. India has 1.1 billion people.

For a related factbox on Mistry's new and previous forecasts on Indian vegetable oil import demand, click on [ID:nKLR81840]

SUPPLY SHORTFALL

Surging Asian demand will chase low palm stocks in Malaysia, which are expected to stay below 1.4 million tonnes until mid-August as output will recover that month when the low yield cycle draws to an end and more fertiliser is used, Mistry said.

"Replenishment of stocks will be very gradual and will commence only in mid-July. I expect Malaysian palm oil stocks to peak in November at 1.7 to 1.8 million tonnes at best," he said.

For a related factbox on Mistry's revised full-year palm output forecasts for Malaysia and Indonesia, click [ID:KLR479598]

The recovery in palm oil output may ease the shortfall in rival vegetable oils, especially soyoil in South America, with leading soy exporter Brazil possibly hiking its biodiesel mandate to 4 percent from 3 percent in July this year.

"It will rule out any further exports of soy oil from Brazil in the second half of 2009," Mistry said. "Brazil has exported beans and products very aggressively in order to make up for the slow pace of disposals in Argentina."

Mistry said soyoil shipments from No. 3 soy exporter Argentina, already suffering from drought and a tussle between farmers and the government over soy export taxes, would be much smaller after Oct. on a smaller crop and electricty cuts.

"Between June and August there are likely to be electricity cuts due to the shallow water levels as a result of the drought. That factor will affect export of meal and oil," he said, but did not issue forecasts of Argentine and Brazilian soyoil exports. (Editing by Clarence Fernandez)