KUALA LUMPUR (Nov 21): Growth in palm oil production will slow in the next few years, helping reduce stockpiles and boost prices, leading industry analyst James Fry said on Thursday.

Dry weather and lower fertiliser use — a move adopted by some growers to save costs — have affected output this year at top producers Indonesia and Malaysia, and will continue to be a factor in the coming years, Fry said.

“In addition, we have seen the repercussions from the relentless pressure from NGOs to stop oil palm planting. This is on top of the normal slowdown in new plantings that occurs at times when prices are low,” Fry said at an industry conference in Kuala Lumpur.

“These cutbacks will inevitably keep crude palm oil output growth low for the next few years and therefore, help to reduce stocks and raise prices,” he said.

Environmentalists have blamed the cultivation of palm oil, which is used in everything from ice cream to lipstick, for mass deforestation in Southeast Asia and endangering wildlife such as orangutans and pygmy elephants.

Indonesia’s production this year may prove to be little changed from last year, while Malaysia will see some growth, Fry said.

Fry is the chairman of consultancy LMC International and his forecasts are closely watched in the palm oil industry.

On Wednesday, Fry said Indonesia and Malaysia will see little growth in output next year and that there will likely be a supply deficit in the market as demand for biodiesel grows in both the countries.

Benchmark palm oil prices on the Malaysian exchange rose to a two-year high after Fry’s comments and continued to rise on Thursday.

Global palm oil stocks will decline next year and that would make a supply deficit “inevitable”, Fry said at the conference.

The resulting higher prices could see some palm oil demand switch to competing oils, he said.

Source : The Edge Markets