CPO drops the most since June

Tags: CPO | Dalian | December delivery | Dorab Mistry | Godrej International Ltd | Malaysia Derivatives Exchange | Malaysian Palm Oil Board | UOB Kay Hian

Written by Claire Leow
Tuesday, 29 September 2009 11:31

SINGAPORE: Crude palm oil (CPO) tumbled the most in more than three months after a leading industry buyer said prices must slump 13% from current levels to stoke demand for food and fuel applications and as crude oil fell.

The commodity needs to decline to RM1,900 a tonne for demand to rebound, Dorab Mistry, director of Godrej International Ltd, said in Mumbai last Sunday.

Godrej is one of the biggest buyers of palm oil in India, the second-largest consumer of edible oils.

“Prices need to become more competitive if biodiesel usage is to expand,” Mistry, who has traded edible oils for three decades, said at a conference.

CPO for December delivery in Malaysia, the second-biggest producer, dropped 3.8% to RM2,103 a tonne on the Malaysia Derivatives Exchange. That was the biggest drop since June 22.

Prices of the tropical commodity, which competes directly with soybean oil for use in cooking and biodiesel, have climbed 24% this year on concern there may be a global oilseed shortage. Higher crude oil prices and speculation the global economy was recovering also boosted futures.

Crude oil slipped to less than US$66 (RM229.68) a barrel in New York yesterday as declines in Asian equities raised concern a recovery in fuel demand may stall.

November-delivery crude oil, which slumped 8.9% last week, dropped as much as 0.9% to US$65.41 a barrel in Singapore. It was 0.5% lower at US$65.69 at 6.29pm Singapore time.

CPO traded in Dalian, China for May delivery dropped 1.5% to 5,730 yuan (RM2,919.72) a tonne, a sixth day of decline. China is the world’s largest consumer of edible oils.

“We concur with Dorab’s expectations for weaker crude palm oil prices till end-2009,” a UOB Kay Hian research report said yesterday.

“We expect the weak price trend to continue into March or April 2010” as supply improves during the seasonally weakest quarter for demand in the first quarter, it added.

The outlook for CPO was based on an assumption that crude oil will trade at between US$65 and US$80 a barrel until the spring of 2010, Mistry said. He correctly predicted on Aug 4 that CPO would drop to RM2,100 a tonne as inventories expanded on increased production.

Malaysia’s palm oil production gained 0.2% in August on- month to 1.49 million tonnes, the highest level since a record set in November last year, according to the Malaysian Palm Oil Board on Sept 10.

That helped lift stockpiles to a six-month high of 1.42 million tonnes, as exports fell for the first time in four months.

Still, CPO may reach US$1,000 a tonne if a global economic recovery pushes crude oil up to US$95 a barrel, James Fry, managing director of LMC International Ltd, which tracks the world’s main oilseeds, said at the same conference.

“Biofuels have created a link between mineral and vegetable oil prices,” Fry said. — Bloomberg


This article appeared in The Edge Financial Daily, September 29, 2009.