SINGAPORE/KUALA LUMPUR, July 30 (Reuters) - Average palm oil prices in Malaysia may hold their ground at 3,200-ringgit this year, a Reuters poll showed, supported by a squeeze in supplies of edible oil from the drought-hit U.S. Midwest and the brewing El Nino weather pattern.
The median forecast of 30 analysts who cover the palm oil sector came in at 3,200 ringgit ($1,016) per tonne for the whole of 2012, just 1.2 percent lower than an average of 3,240 ringgit in the first half of the year.
The prediction also beat the 3,000 ringgit touted for the entire year in January, signaling that analysts are counting on demand shifting to palm oil from soyoil, which is now trading at a more than a $200 per tonne premium due to tight supplies.
"Declining palm oil stocks and a spillover of bullish sentiment from the U.S. drought-driven rally are likely to continue supporting palm oil prices around 3,000 ringgit," said Pawan Kumar, a Rabobank analyst in Singapore, who pegged average 2012 palm oil prices at 3,128 ringgit.
"But a slowdown in exports combined with a seasonal upswing in palm oil production will likely push stocks higher, capping the price gain."
Malaysian palm oil stocks hit a 14-month low in June, fanning fears of tighter global supplies at a time when the drought in the United Sates was intensifying. Prices hit 3,628 ringgit in April, the highest level seen so far this year.
FESTERING CRISIS
Estimates for 2012 prices ranged between 2,900 and 3,938 ringgit, with analysts divided on the impact the festering euro zone debt crisis and slowing global growth would have on food demand in India and China, the world's top edible oil buyers.
Phillip Futures commodity analyst Ker Chung Yang said India's high inflation and the weak rupee could hurt appetite, though he thought demand from China would remain supportive.
"We expect demand from China to continue to underpin prices, especially given the current huge discount between soybean oil and palm oil," the Singapore-based analyst said.
Other analysts surveyed said that demand growth from Asia's biggest buyers could lift average palm oil prices above the 3,200-ringgit level.
"Demand from emerging economies in Asia like China, India and Indonesia should still grow year-on-year on the back of population growth and higher crude palm oil consumption per capita," sa i d Alan Lim Seong Chun, an analyst at Malaysia's Kenanga Investment Bank.
RISING ODDS
Respondents, surveyed over two weeks, mostly said prices could get further support from tree stress caused by the onset of the El Nino weather phenomenon, which typically brings dry weather to Southeast Asia and could crimp yields.
Add that to the ongoing drought in the U.S. and there is a case for a price rally, said CIMB Investment analyst Ivy Ng.
"The drought has resulted in a 5 percent cut in U.S. soybean production forecasts, which is good news for the crude palm oil price," Kuala Lumpur-based Ng said in a July 17 note to clients.
"We are more positive on second-half prospects given the rising odds of an El Nino."
Analysts pegged average palm oil prices lower at 3,080 ringgit for 2013, saying the euro zone debt crisis was still likely to be a factor broadly weighing on food and industry demand for the tropical oil.
"We believe the greatest downside risk for our price forecast is biodiesel consumption," said Ben Santoso, DBS analyst in Singapore.
Only 10 percent of palm oil consumption is channeled into the energy sector, however, according to Hamburg-based oilseeds analyst Oil World. That means palm oil could benefit from filling in demand gaps left by other vegetable oils in the case of a crude oil price surge.
"Palm oil is at a real crossroads with few catalysts to the upside unless crude oil prices shoot up or weather is bad - though the latter seems to be priced in," said Chris De Lavigne, vice president of Industrial Practices at Frost & Sullivan.
"At this stage with so much volatility, 2013 can only be guesswork."
