FCPO Related News

Expectations for higher palm oil inventory levels for the October-December quarter this year amid slowing demand could drag BMD CPO futures lower at the start of trading Monday. "Palm oil futures' bearish [sentiment] remains, with immediate support tipped around MYR2,750-MYR2,755/ton," HLB Futures says, adding that failure to break below MYR2,750/ton will likely encourage end-users to buy on dips. (Dow Jones Newswire)

On Friday, benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange lost 2 percent to close at 2,763 ringgit ($905) per tonne, after hitting an 11-month low of 2,755 ringgit earlier in the day. Brent crude closed at $111.42 per barrel.

Dorab Mistry Forecast (Bloomberg)

“Demand for palm oil in particular, and for vegetable oils in general has been softer than expected in 2012,” said Dorab Mistry, director at Godrej International Ltd., who has traded palm oil for more than three decades. Demand was hurt by slower growth in the production of biofuels from vegetable oils and a slowdown in economic growth in the developing countries amid high prices, he said. Mistry expects futures to drop to 2,600 ringgit to 2,700 ringgit a ton by December, less than the 2,900 ringgit to 3,300 ringgit he forecast on Sept. 6. The commodity last traded below 2,600 ringgit in September 2010.

With the recent sell-off, the probability of prices falling to 2,300 ringgit has risen to 50 percent from 20 percent in June, he said. The December-delivery contract fell 2 percent to 2,763 ringgit a ton on the Malaysia Derivatives Exchange on Sept. 21, the lowest price at close for the most-active contract since October 2010. The tropical oil has fallen 20 percent since the end of March and is heading for a second straight quarterly decline on concern that a pick-up in production will drive stockpiles in Malaysia and Indonesia to records. Stockpiles in Malaysia will continue to expand in October, November and December and may reach as high as 3 million tons by January, Mistry said.

Inventories in Indonesia have hovered between 3.5 million tons and 4 million tons since 2010 as against popular estimates of 1.5 million tons to 2 million tons, he said. Production in Indonesia may climb to 27.5 million tons in 2012, higher than the 27 million tons estimated on Sept. 6, while Malaysia’s output may be 18 million tons this year, less than the 18.2 million tons forecast previously, he said. “The supply position on palm oil is therefore extremely comfortable and is likely to remain that way for the next several months,” Mistry said.

“There is a slowdown in China, and Europe has slowed purchases for biodiesel. The discount between soybean oil and palm oil will further widen.” The gap between the two oils, which jumped to a four-year high this month, widened to $304.67 a ton on Sept. 21, data tracked by Bloomberg showed. The record is $493.76 in August 2008. Soybean oil and palm oil are used in foods and fuels. Global vegetable-oil supplies will increase by 3.05 million tons in 2012-2013, while demand may expand by 3.5 million tons, Mistry said. Soybeans may reach a record $20 a bushel in December or January and drop with the swelling of harvests in Brazil and Argentina, he said. Global consumption will drop about 3 million tons in 2012-2013 because of record prices, according to Thomas Mielke, executive director of Oil World.

James Fry Forecast

NEW DELHI, Sept 22 (Reuters) - Malaysian crude palm oil (CPO) prices may fall nearly 7 percent to 2,575 ringgit per tonne in the last quarter of 2012 from current levels if Brent crude oil prices come down to $95 per barrel, a top analyst said on Saturday. "I am bearish on crude oil prices. They should come down. Demand is slowing due to a slowdown in the global economy," James Fry, chairman of commodities consultancy LMC International, said at the Globoil India conference here.

He expects the CPO price in the fourth quarter (Oct-Dec) to be 2,285 ringgits if the crude price is $80 per barrel, more than 17 percent down from the current level, although he sees palm oil recovering to 2,450 ringgits in the first quarter of 2013.

"Eventually new supplies (deep sea, tar sands and shale oil) and weak demand growth, led by substitution by natural gas, will pull the market back to earth as oil stocks climb," he added. Vegetable oil prices benefit from higher crude levels as their use as biofuels, which are seen as greener alternatives to petrol and diesel, becomes more economically attractive.

"Crude oil is now the key to vegetable oil prices," Fry said in his presentation slides. The premium of CPO over petroleum prices has fallen sharply since July due to rising inventories, Fry said. "Mills must put oil into their tanks every day, regardless of the final demand. This makes them into permanent 'distress sellers' and helps explain why CPO always trades at a discount" (to other edible oils). The London-based analyst forecast Indonesia's palm oil output in 2012 could rise by 8.1 percent to 27.25 million tonnes, while Malaysia may see a 3 percent drop in it production to 18.34 million tonnes.

Today’s Support and Resistance for Benchmark December is located around 2550 and 2800 respectively.