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Saturday December 5, 2009

Palm oil prices may rise 21% on stronger demand

NUSA DUA, Indonesia: Malaysian palm oil prices may rise up to 21% by the first quarter of 2010 from their current levels on strong demand and as hotter weather hits yields, a top industry analyst said yesterday.

Dorab Mistry, head of vegetable oils trading at Godrej International, raised his forecast for the first three months to RM2,800-RM3,000 a tonne from an earlier estimate of RM2,400.

“I expect palm oil prices to rise at the fastest pace in relation to all other vegetable oils,” Mistry told the Indonesian Palm Oil Conference and Price Outlook 2010 meeting in Bali.

“That would put RBD Olein at about US$900 FOB by the end of January 2010,” he said, adding that the tropical oil would still be the cheapest edible oil in the world.

Palm oil’s gains would narrow its spread to Argentine soya oil as the South American vegetable oil would rise at a slower pace, London-based Mistry said. He did not give a timeframe.

The El Nino weather pattern, which can cause drought conditions in the Asia-Pacific region, may hit Malaysian palm production hard and limit the output growth in the world’s second largest palm oil producer. Drier weather driven by El Nino curbs the development of oil-rich female palm flowers and yields often weaken six to eight months later when the flowers mature. But the palm oil market usually reacts immediately on drier weather forecasts.

“It is conceivable that 2010 (Malaysian) crude palm oil production will turn out to be less than 2009,” Mistry said. “If that were to happen, it will be the first time in history that Malaysian production will have declined for two years in a row.”

Production in Malaysia could fall below 17.5 million tonnes next year also due to the end of the high output cycle, Mistry said.

Indonesia would be less affected with drier weather limiting additional output by 1 million to 1.5 million tonnes, the analyst said, lower than other forecasts by government and industry officials for about 2 million tonnes.

The weakness in palm oil output growth suggested that additional supply would only reach 3.25 million tonnes in the year to September 2010 against incremental demand of 5.5 million, Mistry said. — Reuters

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