'Bullish' outlook seen for palm oil

Published: 2009/05/29

THE outlook for palm oil prices is “bullish,” underpinned by higher demand in India and China, lower inventories, and drought in Argentina hurting global vegetable oil supplies, according to an industry executive.

“The price is bullish in the medium term,” Derom Bangun, deputy chairman of the Indonesian Palm Oil Board, told a conference today, citing a target of US$800 a metric ton in Rotterdam, which includes costs and insurance. That compares with yesterday’s close of US$760 a ton for the Rotterdam contract.

Palm oil prices have surged this year, bolstered by higher crude oil prices and speculation that demand may increase as the global economy moves out of recession. The Argentine drought has also supported palm oil prices as lower supplies of soybean oil may increase demand for palm oil. The two are substitutes.

Palm oil in Rotterdam has gained 41 per cent this year, while the benchmark contract in Asia, traded by the Malaysian Derivatives Exchange, has advanced 49 per cent to RM2,523 (US$721) a ton. About 90 per cent of palm oil is grown in Indonesia and Malaysia.

India has a “very encouraging increase” in demand, Bangun said in Jakarta, the Indonesian capital. In China, the world’s third-largest economy, demand for palm oil has risen faster than supply, he said. Bangun also highlighted lower palm oil yields earlier this year and declining palm oil stockpiles in Malaysia and Indonesia.

Output from some trees was as much as 25 per cent less than estimated in the first two months of the year, he said. Stockpiles in Malaysia declined to about 1.29 million tons in April, 5.4 per cent lower than March, according to data from the Malaysian Palm Oil Board on May 11. Inventories in Indonesia stood at less than 1 million tons, Bangun said. Unlike Malaysia, Indonesia does not release monthly data. -- Bloomberg