KUALA LUMPUR, March 6 (Reuters) -
Palm oil prices could drop further this year due to
swelling supplies of competing commodities such as oilseeds, while high stocks
in the world's top consumers and producers of the tropical oil will also drag.
Prices of palm oil plummeted 23
percent last year largely on a stockbuild in major producers Indonesia and
Malaysia, and traders and analysts at a conference in Kuala Lumpur said they could
fall further when global oilseed supply kicks into high gear later this year.
"In 2013 post-September, we see
big supplies of soybeans, sunflower seeds and even of palm oil, which will be
entering a new high cycle. We have also begun the oil year with the heaviest
carry-over stocks in history," leading industry analyst Dorab Mistry said
on Wednesday at the meeting.
Indonesia, the world's top palm oil
producer, does not publish official data on inventory levels, but they were
estimated at 5 million tonnes in January, while No. 2 producer Malaysia started
2013 with record stocks of 2.63 million tonnes.
"Therefore the outlook further
forward, given normal weather, is bearish," continued Mistry, who is also
the director of Indian conglomerate Godrej International Ltd.
Conference attendees were also
focusing on inventory in top buyers India and China, which rose to record
levels in February as traders stocked up ahead of changes in policy by their
respective governments.
Mistry said prices should remain in
a 2,300-2,500 ringgit ($740-806) range until end-April, warning that trading
may be more volatile due to a looming election in Malaysia. Prices FCPOc3
stood at around 2,400 ringgit on Wednesday.
Palm oil's geopolitical risk was
highlighted during the industry meeting, which coincided with a prolonged
standoff between the Malaysian military and an armed Filipino group on Borneo
island that has forced several refineries there to slow operations.
Improving soybean output from South
America, estimated to grow more than 20 percent this year, may push down palm
oil prices to 2,200 ringgit after mid-April, Mistry added. A higher soybean
supply for crushing into vegetable oil could shift demand away from rival palm
oil.
While prices may slump further on
expanding palm oil output in July-August, Mistry did not foresee prices falling
below 1,800 ringgit unless Brent crude oil drops under $80 per barrel from
around $112 on Wednesday
But food and energy demand for
vegetable oil should remain supported by low prices, especially after the U.S.
Congress passed a blending tax credit for biodiesel in January.
"I am estimating world food
demand to grow by 3.5 million tonnes, mainly as a result of lower prices,"
said Mistry, noting that biodiesel demand worldwide could expand by about 1
million tonnes this year.
Another top analyst, James Fry,
posted a more bullish view on biodiesel appetite, saying record high stocks
that narrowed Brent crude's premium to palm oil have encouraged much greater
use of the edible oil as fuel in local and overseas markets.
"If I were Petronas or
Pertamina today, I would be rushing to buy local CPO (crude palm oil) to
upgrade into biodiesel for blending with diesel, so as to hold down the costs
of supplying motorists with their diesel fuel," said Fry, adding that the
higher demand would help stocks decline and push prices to 2,625 ringgit by
mid-year.
Analysts, traders and industry
officials surveyed by Reuters at the conference saw average palm oil prices
this year declining almost 18 percent to 2,420 ringgit from last year's 2,958
ringgit.
TAXING ISSUES
Tax changes in major producers and
consumers that could add more uncertainty to the palm market were also a hot
topic at the conference this year.
"Another big unknown is the way
Malaysian export taxes will affect Europe's CPO premium over Brent," said
Fry, who is the chairman of commodities consultancy LMC International.
Malaysia in October approved a plan
to cut crude palm oil export taxes and is setting the tariff on a monthly
basis, as it tries to claw back market share from rival Indonesia.
The export tax for March rose to 4.5
percent from zero percent in January and February.
Analysts were also touting a
possible hike in the Indian import tax aimed at curbing the country's edible
oil purchases that have pushed stocks to a record-high.
"I expect that by August to
September 2013, the import duty on unrefined oil will be further hiked to 20
percent and to 27.5 percent on refined oil," Mistry said.
The country currently imposes a 2.5
percent import duty on crude edible oil and 7.5 percent on refined products.