NUSA DUA (Indonesia): Malaysian palm oil prices are set to hit RM3,000 next year as strong demand cuts high stocks and rising crude oil prices encourage more biofuel demand, two top analysts said yesterday.

James Fry, who heads LMC International in London, said palm oil prices may rise to RM3,200 by June based on Brent crude hitting US$85 (US$1 = RM3.38) a barrel and Malaysian palm oil stocks falling to 1.25 million tonnes. Traders expect stocks to have hit about 2.0 million-2.2 million tonnes last month, and Brent crude prices now hover at US$78.23 a barrel. Fry bases his forecasts on Brent crude due to the growing European biofuel sector, which uses the grade as a benchmark. Dorab Mistry, head of vegetable oils trading with Godrej International, echoed Fry’s views. He said palm oil will rise to RM2,800-RM3,000 in the first quarter of next year on strong demand and as hotter weather hits yields. Mistry based his predictions on the brewing El Nino pattern, which can cause drought conditions in the Asia-Pacific region, hitting production in Malaysia and limiting output growth in Indonesia.

“It is conceivable that 2010 (Malaysian) crude palm oil production will turn out to be less than 2009,” Mistry said. “If that were to happen, it will be the first time in history that Malaysian production will have declined for two years in a row.” The predictions from Fry and Mistry are contrary to an industry outlook for a correction in prices next year. “I am still cautious about 2010 because it is hard to predict where crude oil prices will go and how fast stock levels can come down in Malaysia,” said a Malaysian palm oil trader who attended the conference. Benchmark palm oil prices on the Bursa Malaysia Derivatives Exchange rose on the forecasts but traders were concerned about an expected buildup in stocks until the end of the year. Planters and government officials said it was more likely that heavy rains in Malaysia were having an impact on yields than drier weather. “Our main concern is the heavy rains and it’s already reaching our key oil palm growing states. Exposure to rains will compromise our yield quality for months,” a senior Malaysian government official in charge of palm oil said. – Reuters Source : Business Times

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