This article first appeared in The Edge Financial Daily on March 7, 2018

KUALA LUMPUR: The benchmark crude palm oil (CPO) futures are expected to rise to RM2,700 per tonne by June from RM2,500 per tonne in March, while CPO in Rotterdam may rise to US$750 (RM2,925) a tonne, according to Godrej International Ltd director Dorab Mistry (pic).

Dorab, who has a bullish outlook on palm oil in the midterm, said with growth happening in a coordinated fashion in the world and elections in several countries this year including Malaysia, it was not possible to have bearish commodities.

In a special paper presented for 2018 during the Palm and Lauric Oils 2018 Price Outlook Conference and Exhibition, Dorab estimated palm oil output this year to come in at 20.5 million tonnes for Malaysia and 37.5 million tonnes for Indonesia.

Meanwhile, Dorab said he was disappointed with Malaysia, which has kept its biodiesel mandate at 7% palm oil content (B7), despite several attempts to raise it to 10% or B10.

“Somehow the [Malaysian] industry seems to have lost its hunger for success. The industry seems to have become a little complacent [whereas] Indonesia has managed to get export tax in, which created surpluses and recycled them to subsidise its biodiesel.

“I congratulate the Indonesian Palm Oil Association and stakeholders for showing what self-help is all about. It has managed to stabilise the price of CPO in Indonesia, and keep it expanding as a result of that price stability,” he said.

It is the stellar performance of the Indonesian biofuel mandate that has rescued palm oil from a bear market in the face of high production, he added.

In an alternative bullish scenario, Dorab said the industry should be prepared to see oil palms suffer tree stress as haze returns to Southeast Asia this year, leaving Malaysian output unchanged in 2018 and Indonesian production up by just two million tonnes, Dorab said.

Indonesia may also see palm-biodiesel consumption rise by one million tonnes, on the possibility of Indonesia extending its biodiesel subsidy into the non-public service obligation (non-PSO) sector, to raise domestic consumption of palm oil.

Dorab said India’s record palm oil import tariff hike seems to have galvanised Indonesians to raise its local palm oil consumption.

“I am sure it will happen, [that] Indonesia will consume extra one million tonnes of palm biodiesel this year. The only question is will the government have the guts to do it before or after Ramadan.

“Previously, I was confident Indonesia would do it after Ramadan, but since the Indian duty hike, indications are that they are prepared to do it before, to preserve the price of CPO of smallholders.

“In Indonesia, a larger proportion of palm oil is produced by smallholders compared to Malaysia, and they are a very important constituency. Indonesia is also having its elections in 2019.

“When Indonesia’s non-PSO biodiesel subsidy comes in, it would be a game changer ... I don’t expect fireworks in the market but I think CPO in the alternative bullish scenario can rise by another US$50 to US$800 per tonne in Rotterdam,” he said.