Palm oil prices seen hitting 3,000 rgt as El Nino curbs output: analyst

[KUALA LUMPUR] Malaysian palm oil futures will climb nearly 20 per cent to around 3,000 ringgit a tonne as dry conditions brought by the El Nino weather pattern curb output in major producers Indonesia and Malaysia, said top industry analyst Dorab Mistry.

Benchmark Bursa Malaysia Derivatives Exchange futures climbed almost 5 per cent in February on lower production, but gains have been capped by declining demand from major importers. They stood around RM2,540 (US$620) this week.

Palm oil prices will keep climbing until they hit a level that stifles demand from price-sensitive importers such as India, Mistry told an industry conference in Kuala Lumpur on Wednesday.

"I believe we must now cast aside all ideas of CPO futures at RM2,600 or RM2,700," he said, referring to crude palm oil. "We have to take prices to levels where demand does not expand and is made to shrink somewhat in price-sensitive markets like India. That will mean ... futures trading with a 3 rather than a 2."

Mistry, Singapore-based director with Indian consumer goods company Godrej International, did not give a timeframe for this to happen.

He said global palm oil production is forecast to decline by almost 3 million tonnes in the year to Sept. 16 due to dry weather experienced by plantations late last year and in recent months across Indonesia and Malaysia. The two nations account for 90 per cent of the world's palm oil output.

Malaysian palm production is expected to drop by 1.5 million tonnes to 18.4 million tonnes.

"Data on Indonesia is much more difficult to obtain, examine and extrapolate. The severest effect of the El Nino has also been limited to Southern Sumatra and to parts of Kalimantan," he said. "Therefore, at this stage, I am only reducing my estimate of Indonesian production by 1.2 million tonnes."

The current El Nino, a warming of sea-surface temperatures in the Pacific that typically leads to scorching weather across Asia has been easing. But it has already hit palm plantations in Southeast Asia.

Earlier in the day, another leading edible oil industry analyst, Thomas Mielke, said he expected prices to climb to around 2,700-3,000 ringgit a tonne by June.

Meanwhile, analyst James Fry said they would rise to RM2,75 per tonne by June on a Brent crude oil forecast of $35 a barrel, and hit RM2,900 if oil reached $40. Brent stood just below $40 on Wednesday.

A Reuters poll last week showed Malaysia's February palm oil production falling 5 per cent from the month before to 1.07 million tonnes, its lowest output levels since January 2011.

The lower palm oil production cycle is likely to run until June, Mistry said.

"Consumers may only be able to heave a sigh of relief from July," he said. "Replenishment of stocks may take a bit longer - possibly until September 2016."

REUTERS