Published March 12, 2009

Poor demand could slice 10% off M'sian palm oil prices

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(KUALA LUMPUR) Malaysian crude palm oil prices will probably drop at least 10 per cent in the next six months as a worsening global recession reduces food and fuel consumption, senior analyst James Fry said yesterday.

'If crude oil stays at these kinds of levels, just below US$45, I would see a fall of over 10 per cent,' Mr Fry told Reuters on the sidelines of an industry seminar. 'If crude oil goes down, then the price will fall more.' Bursa Malaysia palm oil futures edged lower yesterday, with the benchmark May contract down RM5 (S$2.07) at RM1,990 per tonne.

The third-month contract has risen more than 17 per cent this year as stocks in top producers Indonesia and Malaysia dropped to an average of 4 million tonnes from a record 5 million in December.

Mr Fry's comments are in line with trade estimates, which expect prices to fall because of a slowdown from top importers China and India after heavy stockbuilding, a seasonal supply spurt and a rebound in producer inventories that fell to their lowest since 2007.

'You have some countries like India which are still okay, but in the industrial world, the US, Europe and Japan, I think food demand is going see an insignificant change, maybe down so all the growth has to come from biofuels,' said Mr Fry, who will be presenting his price forecast at the seminar today.

'And people are saying that biodiesel production in the US will be half of last year because of the anti-dumping duties in Europe. To me, that sounds pretty bearish if you lose a big chunk of non-food demand.' The European Union moved to impose temporary duties on US biodiesel imports earlier this month, following months of complaints from European companies that they were being hammered by US subsidies.

The EU firms accuse US producers of being involved in a 'splash and dash' scheme, whereby they import cheaper biodiesel from countries such as Brazil and add less than 5 per cent of US diesel. The producers then qualify for a subsidy from Washington before exporting it to Europe.

From March 13, US firms exporting biodiesel into the EU will have to pay additional tariffs for an initial six months, ranging from 26 euros to 41 euros per 100 kg.

The world's leading vegetable oil traders and consumers are gathered in the Malaysian capital for the Bursa Malaysia palm oil conference.

Issues being discussed range from price forecasts for palm oil, whose discount to soy has narrowed since January to the smallest in a year, to the threat from flagging demand and the edible oil's seasonal peak in output. -- Reuters