Published September 28, 2009

US$1,000 a tonne possible for palm oil

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(SINGAPORE) Palm oil may reach US$1,000 a tonne if a global economic recovery pushes crude oil up to US$95 a barrel, said James Fry, managing director of LMC International Ltd, which tracks the world's main oilseeds.

Good crop: Palm oil may average US$650 a tonne this year and next year due to threats to production, say Citigroup analysts

Vegetable oils, which are used as biofuels, usually gain alongside crude. Oil has risen 48 per cent this year, averaging US$57 a barrel, amid speculation that the worst recession since the Great Depression is easing. Palm oil has increased 29 per cent.

'Markets are looking well ahead at a recovery that is not yet revealed in the US statistics,' Mr Fry said in an e-mailed presentation for a three-day conference in Mumbai that concluded yesterday.

Governments worldwide, including in Europe, have ordered the use of ethanol or vegetable oils in petrol and diesel to boost supplies. Diesel in Brazil, the world's second-largest soyabean grower, will contain 4 per cent biofuel from July, Energy Minister Edison Lobao said on May 14.

'Biofuels have created a link between mineral and vegetable oil prices,' Mr Fry said.

Palm oil for December delivery in Malaysia, the second-biggest producer, rose 3.4 per cent to RM2,186 (S$891) on Sept 25. Futures peaked at RM2,799 a tonne on May 13 amid speculation that production is expanding as oil palms recover from tree stress after record 2008 output.

The commodity, the world's most consumed oil, will climb above US$750 a tonne in Rotterdam if crude remains at the current level of about US$65 a barrel, Mr Fry said. The price may reach US$675 if oil drops by US$10, he said.

Speaking in Istanbul in August, Mr Fry predicted that palm oil may top this year's peak of US$800 a tonne by December, driven by higher crude oil prices and tight Malaysian inventories.

'Stocks no longer drive palm oil,' Mr Fry said. 'Instead of stocks acting as the main driver of prices, the Brent crude price band is now the major influence.'

Reserves in Malaysia reached a six-month high last month after production climbed to the second-highest level on record and exports declined the first time in four months. Inventories climbed 6.2 per cent to 1.42 million tonnes in August from July, the Malaysian Palm Oil Board said on Sept 10.

Palm oil may average US$650 a tonne this year and next year on threats to production, Citigroup Inc analysts Penny Yaw and Margaret Go said on Sept 17. They had previously estimated the average price for this year to be US$610 a tonne, and next year, US$550 a tonne. -- Bloomberg