Palm oil futures may end the year 2 percent above current levels due to lower output in second-biggest producer Malaysia, but abundant supplies of rival oilseeds mean prices will still close down about 19 percent for the year, a Reuters poll showed.
While a median survey of 14 planters, analysts and traders pegged prices at 2,161 ringgit ($660.05) per tonne for the end of this year, forecasts ranging between 1,900 ringgit and 2,600 ringgit indicate sentiments remain mixed on how the market would react to high soyabean supplies and weak crude oil prices.
"In November and December, you'll have a drop in production, which will continue into January, February and March. By the time you come into November and December, stocks would have already peaked and show signs of dropping," said a trader with a foreign commodities brokerage in Kuala Lumpur. Benchmark palm prices had plunged almost 28 percent over the first eight months of the year as Malaysia's palm oil stocks surged to a more than one-year top above 2 million tonnes, but a recovery in futures has set in since September amid signs of weaker output.
Malaysia will face its rainy north-east monsoon season from early or mid-November that is marked by frequent thunderstorms and flooding, which will delay harvesting and complicate transportation of palm fruit to mills as roads become inundated. The wet weather could cut Malaysian output by as much as 13 percent this quarter from the previous three months, analysts said. This together with an extension of tax-free exports of crude palm oil (CPO) from Indonesia and Malaysia - which account for 85 percent of global palm supply - could help shore up prices.
Output in top producer Indonesia may remain flat or even rise during the quarter, some Jakarta-based respondents said. Major planters such as Sime Darby, IOI Corp and Wilmar International could see their profit margins improve if palm prices recover from their swoon.
Palm oil is used as a cooking oil and in a wide variety products ranging from candies to cosmetics and soaps. It is also a popular "green" additive to fossil fuels. But a price recovery from current levels of 2,112 ringgit is not certain given weak demand from the biofuel industry, absence of the crop-damaging El Nino weather phenomenon and rising global supply of rival oilseeds, some poll participants said.
Earlier this year, market players had forecast a second straight annual gain in palm prices on strong demand from the biofuel industry for the tropical oil. But expectations changed after the recent rout in oil prices. "The elephant in the room has awakened, namely the world crude oil price," said Howard Sargeant, director of plantations at PT Samuel International in Jakarta. "Brent is heading south and this will impact crude palm oil prices," he added, referring to the plunge in oil to a near four-year low of $82.72 a barrel.
Weak crude prices make the tropical oil a less attractive option for biodiesel feedstock. Malaysian crude palm oil's discount to gasoil quoted in Singapore has narrowed to about $80-$90 from $260 in August. Palm prices could also come under pressure due to a bigger global supply of soyabeans for crushing that would lower soyaoil prices and potentially snatch demand away from palm.
The US Department of Agriculture projected that a record 3.927 billion bushel US soyabean harvest was progressing faster than expected. Brazil and Argentina's 2014/15 soyabean production were also forecast to be steady. Refined palm olein currently trades at about a $70 discount to soya oil, narrower than a spread of $300 seen at the start of 2013. "We have seen the uptake after the CPO export tax was lifted, but we cannot run away from fact that the United States and South America are certainly going to produce bumper crops," said Lingam Supramaniam, director at Malaysia-based commodities firm Pelindung Bestari.
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