Palm Oil May Climb 7% by First Quarter on Demand, Mistry Says

Nov. 9 (Bloomberg) -- Palm oil prices may advance 7 percent by the first quarter driven by a revival of demand from China and India, the world’s two biggest importers, said Dorab Mistry, director of Godrej International Ltd.

“After a few weeks, as demand from China and India returns, I expect crude palm oil futures to begin to rise and to attain my target of 2,400 ringgit in the first quarter of 2010,” Mistry said in comments prepared for delivery at a conference in Guangzhou, China, yesterday. The prediction is the equivalent of $709 per metric ton.

Palm oil, used in cooking and fuel, has climbed 33 percent this year as crude oil gained 75 percent and rains and freezing weather threatened harvesting of the soybean crop in the U.S., the biggest producer, potentially reducing output of soybean oil.

The price outlook in 2010 appears “friendly,” he said, adding much will depend on energy costs. His forecasts are based on crude oil around $80 per barrel in the next few months, a euro around $1.50 and the rupiah around 9,400 to the dollar.

China and India appear to be “well-covered” at present and it’s possible that palm oil stockpiles will build in the next few weeks toward the end of the calendar year, he said.

Palm oil stockpiles in Malaysia, the second-biggest producer, will probably peak at 2.1 million tons at the end of December before declining in the New Year, said Mistry, whose speech was delivered in his absence as he was unable to attend the conference.

Stockpile Decline

“Whilst this figure may seem daunting, it will represent less than six weeks consumption,” he said. “It is likely stocks will decline from January or latest from February onwards.” Inventories rose 12 percent to an eight-month peak of 1.58 million tons in September, the palm oil board said Oct. 12.

“It is quite possible markets may come under pressure” and futures may break 2,100 ringgit temporarily, he said. “I no longer expect CPO futures to decline to 1,900 and believe they have bottomed out at the recent low of 2,020,” he said.

January-delivery palm oil last traded little changed at 2,246 ringgit ($660) per ton on the Malaysia Derivatives Exchange on Friday.

The Southern Oscillation Index had turned “sharply negative” in the past three to four weeks and this is “usually a clear pointer to a strengthening El Nino,” he said. “It appears that we are on the brink of dry weather and rainfall deficits in Malaysia as well as Indonesia,” he said.

“A new stronger El Nino will have a profound effect on CPO production” in June to September, he said.

Indonesian Inventories

Palm oil stockpiles in Indonesia, the world’s biggest producer, will increase in the coming months because of higher output, Derom Bangun, a deputy chairman of Indonesia’s Palm Oil Board, said Nov. 2.

Inventories probably increased to 1.7 million tons in October, compared with the August and September average of 1.3 million tons to 1.4 million tons, he said. Mistry has previously forecast that Indonesian production would gain by 2 million tons in 2010 and Malaysian output by 500,000 tons.

Imports of vegetable oils by India will be “more or less the same” in the year starting Nov. 1, 2009, as in 2008-2009 or about 8.6 million tons, he said. Palm oil purchases by the country, the largest importer, will be 6.9 million tons, up from 6.65 million, he said. Total consumption of vegetable oils will gain by 500,000 tons on strong economic growth, he said.

“India’s industry has weathered the recession in very good shape and is now poised to grow strongly,” he said. “This will have an effect on per capita consumption.”