KUALA LUMPUR (Oct 29): Crude palm oil (CPO) futures are expected to trade between RM2,300 and RM2,500 per tonne in the near term, said experts at the Malaysian Palm Oil Trade Fair & Seminar 2014 (POTS 2014) today.
“The worst is over and we can look forward to better times for the palm oil industry,” said Dorab Mistry, renowned forecaster and director at Godrej International Ltd.
Mistry said CPO futures will rise gradually from Dec 10, 2014, to RM2,500 per tonne by March 2015 during his presentation at the two-day seminar which ended today.
Dec 10 is the date when the Malaysian Palm Oil Board (MPOB) will release Malaysia’s inventory data for the month of November.
“Stocks will peak at end-October and then decline until July 2015,” Mistry said, justifying the expected positive price reaction to November stock data.
Thomas Mielke, executive director of ISTA Mielke GmbH, concurred that CPO prices have likely bottomed out.
“We are not going to revisit this low again even if [Brent crude] oil prices decline to US$75 per barrel,” said Mielke.
CPO prices tanked in September to just above RM1,900 per tonne, declining close to 28% from the start of the year as Malaysia’s palm oil inventory surged above two million tonnes.
Mielke forecasts CPO futures prices to range between RM2,300 to RM2,500 per tonne for Jan/March 2015.
“The world is switching back to palm oil because the world needs it,” said Mielke. "Food demand alone is rising some four to five million tonnes a year."
But he pointed out that there will be shortages because the annual supply of the oil and fats market is only growing by 3.9 million tonnes for the 2014/2015 season.
“World production of palm oil is rising only two million tonnes for the 2014/2015 season. Therefore I think palm oil prices will at least moderately increase over the next couple of months.
“The swing factor is demand from the energy sector. The stage is set for higher prices if [Brent crude] oil goes lower to US$75 per barrel which we cannot exclude at this point,” said Mielke.
Similarly, Dr James Fry, chairman of LMC International Ltd, said upside for CPO prices will be at RM2,300 per tonne if Brent crude oil settles at US$85 per barrel.
Fry explained that Brent crude oil prices set the floor for CPO prices which tend to trade at a premium to Brent based on supply factors.
“If we look ahead six months, declining MPOB stocks should support the CPO premium over Brent,” he said.
Spot Brent crude oil prices slid more than 27% to a low of US$86.79 per barrel on October 15, from this year’s US$115.06 high on June 19.
Year-to date, it has lost more that 21%, steadying just above US$86 per barrel today.