Malaysian crude palm oil prices are likely to rise nearly 8 percent to 2,350 ringgit a tonne by February 2015 as a reduction in inventories and lower yields offset an expected drop in crude oil prices, a top industry analyst said on Saturday. "In oil palm, you will see lower fertiliser applications and longer gaps between harvesting rounds. The result will be some drop in output," James Fry, chairman of commodities consultancy LMC International, told the Globoil India conference in Mumbai.
"On top of the fall that would occur if yields simply reverted to normal after a year characterised by generally good weather." Malaysian palm oil futures settled at 2,177 Malaysian ringgit ($668.40) per tonne on Friday, after hitting a five-year low at 1,914 ringgit on September 2.
Forecasting palm oil price to rise to 2,350 ringgit, the London-based analyst assumes the price of Brent crude will drop to $90 per barrel until February. Brent is now around $97 a barrel, after hitting a two year low of $95.60 earlier this week. If Brent crude drops to $85 a barrel, then the crude palm oil price could trade around 2,225 ringgit per tonne in February. "Crude oil prices will ease, as supplies continue to grow and eventually US interest rates rise. This sets the floor (for vegetable oils)," Fry said.
The palm oil price could jump over 13 percent to 2,465 ringgit in February if crude oil price remain at $95. Vegetable oil prices move in sync with crude oil prices due to its rising use as a biofuel, he said. Lower crude oil prices make use of biofuel less attractive.
The competition between leading palm oil producers to export more tropical oil will help reduce stockpiles, which would start falling from November, Fry said. Malaysia, the world's second biggest palm oil producer, has allowed duty free exports of crude palm oil for September and October, and rival top producer Indonesia responded with the same export incentive from October.
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