Malaysian crude palm oil futures could slide by a quarter to 1,200 ringgit per tonne if US crude oil prices decline to $50 a barrel while the health of the global economy worsens, top industry analyst Dorab Mistry said on Tuesday.
Trading at 1,200 ringgit would allow the vegetable oil to be at a discount to US crude oil so that biodiesel demand can kick in at a time of crude palm oil high output in top producers Malaysia and Indonesia, Mistry said. "Looking at the macro economic situation, the outlook for demand and the run of absolutely excellent weather all round the world, it is premature to talk of a bottoming out," Mistry said in a speech to be delivered at an industry conference in China.
"For the next few weeks, palm prices are likely to follow the course of crude oil. Biodiesel has expanded the demand base for palm oil and it is now critical to palm pricing." Benchmark January 2009 crude palm oil futures on the Bursa Malaysia Derivatives Exchange fell 1.3 percent to 1,605 ringgit on Tuesday, around 25 percent off 1,200 ringgit, which Mistry says is very close to the cost of production for inefficient palm estates in Southeast Asia.