Palm oil prices are set to rise in 2016 for the first time in five years, driven by lower output growth from the El Nino's dry weather, but large global oilseed supplies and low crude oil prices will limit gains, a Reuters poll showed. Benchmark prices for crude palm oil (CPO) will average at 2,400 ringgit ($584.23) per tonne in 2016, up 5.5 percent from 2,275 ringgit last year, based on a median estimate from a poll of 14 analysts and traders.
Palm oil fell after reaching a near 21-month high on Friday over concerns of lower production. Prices stood around 2,560 ringgit in early trade on Thursday. Prices will likely gain as the El Nino impact in the second half of 2015 kicks in, lowering palm's fresh fruit bunch yields and reducing output. "We forecast prices to average higher for the first time in five years in 2016. El Nino will clearly dent production prospects in both Malaysia and Indonesia," said Aurelia Britsch, an analyst at BMI Research in Singapore.
"However, this rally would be only temporary as overall supply of palm and vegetable oil will remain relatively satisfactory." High soybean supplies from South America has seen rival soyoil grabbing market share from palm, narrowing the spread between the two oils. Palm oil demand growth is seen waning this year, as top consumers India and China switch to soybean to feed domestic consumption. Record stockpiles from Argentina and a cut in soybean export tax is likely to bolster demand for soy.
Malaysian exports declined nearly 10 percent in January from a month ago, showed cargo surveyor data. The slump in crude oil prices will limit gains in palm, used for blending into biodiesel, as it makes the vegetable oil less attractive as an alternative fuel. Indonesia and Malaysia are pushing to implement higher biodiesel mandates this year, but crude oil's slump is seen curbing efforts.
Average palm oil prices are seen rising to 2,600 ringgit a tonne in 2017, showed the poll, as crude oil could improve. "Biodiesel (in Indonesia) cannot be implemented as the export tax at $50 per tonne collected to fund the biodiesel programme will not be sufficient. The palm oil to gas oil premium is a killer," said Christopher Chai, trader at trading and operations firm Kwantas Oil. Indonesia's fulfillment of its biodiesel mandates aims to create additional demand for palm and prop up prices, but industry players say targets to raise its minimum bio content of gasoil to 20 percent this year is not feasible.
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