(Bloomberg) — Palm oil output forecasts that show the Malaysian harvest expanding to a record are too optimistic, according to Dorab Mistry, who signaled that investors should focus on supply as two low cycles coincide.
“Production in Malaysia in 2015 will not exceed 2014,” the director at Godrej International Ltd. said in an e-mail on Feb. 17, reiterating comments he made in November. “This is and was contrary to the consensus view on production. I believe the market will wake up after March 4,” wrote Mistry, who’s scheduled to present his price outlook at a palm and lauric oils conference in Kuala Lumpur on Wednesday.
While palm oil declined in the past year as a plunge in energy prices cut the allure of biofuels and global oilseed crops surged, lower-than-expected output from the top producers may support prices in 2015. Supply growth from Indonesia, which more than doubled its subsidy for palm-based biofuels last month, will slow this year, according to Derom Bangun, chairman of the Indonesian Palm Oil Board. Indonesia and Malaysia account for more than 80 percent of world supplies.
“The market is focusing on the decline in crude oil prices and the Indonesian biodiesel mandate,” wrote Mistry, who’s traded palm for more than three decades. “To my mind, the story for 2015 will be production.”
Futures fell 15 percent to 2,373 ringgit ($654) a metric ton in the past 12 months on the Bursa Malaysia Derivatives as crude oil slumped amid a glut. Prices, which surged the most since 2010 on Feb. 5 after Indonesia announced the increase in biodiesel subsidies, are 4.7 percent higher in 2015.
Big Impact
The seasonal lean period, which typically occurs at the start of the year, will run concurrently with a biological low cycle from November to June, Mistry wrote in the Feb. 17 e-mail. The impact on output can be considerable when the two come together, he said in November.
A drop in production may help reduce stockpiles. Reserves in Malaysia contracted 12 percent to 1.77 million tons in January, the lowest level since July, even as exports slumped, according to data from the country’s palm board.
Mistry’s outlook for supply contrasts with the Palm Oil Board and the U.S. Department of Agriculture, both of which forecast a record crop. Output may rise to a record 20.09 million tons in 2015 from 19.67 million tons last year, the Palm Oil Board says. Production may gain 1.7 percent to 20.5 million tons in the 2014-2015 year, the USDA estimates. The last time Malaysia posted a drop in annual output was 2012.
Biodiesel Program
In November, Mistry told a meeting in Bandung, Indonesia that he expected no change in the size of Malaysia’s harvest this year, while saying the direction of prices would depend on the biodiesel program in Indonesia. In October, Mistry put Malaysian 2014 supply at 19.6 million tons to 19.8 million tons.
Sime Darby Bhd., the world’s biggest-listed producer, said Feb. 26 that Malaysian palm output may drop 1 percent in 2015. The decline would be spurred by replanting of mature trees and the impact of dry weather early last year, the executive vice president of plantations, Franki Anthony Dass, told reporters.
Production in Indonesia in 2015 will be 31 million tons from 29.5 million tons last year due to slower expansion, Bangun, chairman of the palm board, said in an interview on Feb. 18. That’s lower than the 33 million tons forecast by Joko Supriyono of the Indonesian Palm Oil Association. The USDA also predicts 33 million tons.
“The world needs about 160 million tons of fats and oils supply per year, with demand growing 4 million to 5 million tons annually,” Bangun said. “Now I see Indonesia is slowing too, so fundamentally there could be a shortfall in supply.”
To contact the reporters on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net; Yoga Rusmana in Jakarta at yrusmana@bloomberg.net
To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.netJ ake Lloyd-Smith
Source : Bloomberg
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