CPO could drop 13%-15% by April

NUSA DUA (INDONESIA): Malaysian palm oil futures could fall another 13% to 15%, to under RM1,300 per tonne by April if the price of Brent crude tumbles past US$35 (RM127) a barrel, top industry analyst James Fry said.

Palm oil prices have fallen at a similar pace to benchmark crude oil, falling more than two-thirds from a March peak of RM4,486 due to bumper crops in top producers Malaysia and Indonesia, as well as demand-slowing recession.

“The speed of the slump in crude oil, which I mentioned, shows OPEC may lose control of the markets,” Fry told a palm industry conference in the resort island of Bali yesterday. “I think prices will easily be below US$35 a barrel... Bursa Malaysia palm oil prices will go below RM1,300 and US$400 in European CPO prices... by April.”

Fry, managing director of London-based LMC International, said if Brent crude stayed just below US$40, Malaysian palm oil futures would hover around RM1,400-RM1,500.

The benchmark February palm oil contract on the Bursa Malaysia’s Derivatives Exchange dropped 3.1% to RM1,488 per tonne by 0817 GMT, following Fry’s comments.

Palm oil often tracks crude oil price moves as rival vegetable oils such as rapeseed and soyoil are channelled into the biodiesel industry, allowing the much cheaper tropical oil to satisfy food demand.

But weaker production and lower stock levels in the mid-term should allow palm oil to narrow its discount to soyoil, Fry said. Soyoil stood at US$350 premium to palm at Rotterdam in November.

Data on November palm oil stocks in Malaysia, due to be released on Wednesday, was likely to show an increase to 2.2 million tonnes, Fry said.

“Stocks matter but they matter in a small degree now,” he said. “Stocks will be higher this month but I see them coming down to 1.75 million tonnes in April. Malaysian output year-on-year is moving into a decline.”

The more important factor was biodiesel output using palm oil as a feedstock, Fry said. “If we see more palm methyl ester (biofuel), palm oil would go back above Brent crude, the discount will narrow. That is my positive assumption.”

Fry earlier told Reuters that global biodiesel output was likely to climb 27% to 14 million tonnes in the 2008/09 oil year as producers capitalise on weak raw material prices and absorb excess inventories.

Alternative energy fuels would be the only source of additional demand growth for vegetable oils as demand from the food sector is expected to be flat, thanks to the credit crisis, he said. — Reuters