By Shie-Lynn Lim
Palm oil, the world's cheapest available cooking oil, must drop 7% in the next four to six weeks to attract demand and lead to a decline in record stock levels, top vegetable oil analyst Dorab Mistry said Friday.
Reiterating a forecast earlier this month, Mr. Mistry, who also heads the vegetable oils trading desk at Godrej International Ltd., said prices need to drop to 2,200 ringgit a metric ton "in order to attract massive energy demand so as to reduce and clear stocks."
Once stocks are cleared and demand improves, prices could rise to as much as MYR2,600/ton by February, he said.
Benchmark palm oil futures on Malaysia's derivatives exchange have slumped 26% so far this year as slowdowns in China and the European Union curbed demand for the tropical oil, which is used to make a wide variety of products from toothpaste to noodles and biodiesel.
The fall in demand pushed stockpiles to a record high in Malaysia, the world's no. 2 producer.
Over the next few weeks, output will likely rise in top producer Indonesia, weighing further on prices.
"Indonesian production is running ahead of [my] expectations. Output is peaking this month in November and looks likely to exceed my estimate of 27.5 million tons for 2012," Mr. Mistry said in a prepared speech ahead of a conference in Bali.
He also maintained Malaysia's production at 18.4 million tons this year.
Production in Indonesia and Malaysia, which together account for more than 80% of global production, will continue to expand in the year ahead "since there has been no major weather disturbance. Production in September-December could rise to new highs, possibly creating new monthly production records in both countries."
He expects Malaysian production to recover to 19 million tons in 2013 and pegs Indonesian output between 29.5 million and 30 million tons.
During the 2012-13 marketing year that began Oct. 1 , global consumption may grow by about 4 million tons, outpacing supply growth of 3.2 million tons.
Incremental demand will exceed supply, but Mr. Mistry doesn't expect a sharp surge in prices next year.
"We started the new oil year with the heaviest stocks in history. The massive overhang from the previous year will cushion the impact of lower vegetable oils production in the first half."
From March, a recovery in soft oils production and the anticipation of major soy, canola and sunseed crop harvests "will prevent any thoughts of a price rally" in global vegetable oils, he said.
Rival soyoil, which competes with palm oil for similar export markets, may trade in a $900-$1,020/ton range from May 2013, compared with offer prices of $1,105/ton earlier this week, he said.