Bright Side To Shaky Palm Oil Price, Say Analysts
October 17, 2008 15:43 PM
From Tham Choy Lin
NANJING, Oct 17 (Bernama) — Palm oil’s inherent economics and the global economic slowdown will serve as a bolster for its price which has plummeted sharply in recently months, analysts said at a Malaysia-China Palm Oil Fair and Seminar here yesterday.
They said the anticipated tightening of supplies next year and demand for biofuels will keep the commodity afloat and still profitable for producers.
Dorab Mistry, industry analyst of Godrej International London, said palm oil at RM1,600 per tonne would still be a sustainable level for now and keep producers in the black.
“I don’t think the price needs to fall more for the time being. The production cycle will turn four or five months down the road, the high cycle in Malaysia and Indonesia is coming to an end, and this will automatically tighten supply and will be a great help to the market,” he said.
Thomas Lee Bauer, former commodity trader-turned-banker, said he was looking at a price range of between RM1,900 and RM2,400 in the next 12 months even as the financial markets remained volatile.
“Palm oil is a recession-proof commodity. Production cost is low and the industry will do well during a recession,” said Bauer, who heads the food and agriculture business research in Asia for Rabobank International.
“The business is still good, people need to eat,” he added.
Bauer said demand from China, currently the world’s biggest vegetable oil buyer and largest purchaser of Malaysian palm oil, and India were fairly healthy and it would continue.
China bought 5.5 million tonnes of Malaysian palm oil last year which was 60 per cent of the total vegetable oils it imported.
Palm oil can be used for food and non-food industries and its comparative economic advantage to other vegetable oils makes it an attractive commodity for both developed and developing markets.
Mistry said a fine weather spell for palm growing this year has led to high production and growing stockpile but the cyclical upturn would decrease in the months ahead.
“Palm oil will continue to be profitable and viable long after soyabean becomes unprofitable,” he said, comparing the average per tonne production cost of US$350 (US$1=RM3.48) for palm oil and US$735 for soyabean oil.
He said demand would be kept stable by the use of palm oil as food by poor countries and new demand from industrial uses and biofuels.
On a proposal before the Malaysian government to blend palm oil into diesel, Mistry said it would be a win-win situation as the move would provide a floor for prices and its eventual rise.
“Malaysia should have done it two years ago, like Indonesia,” he said.
Malaysian Palm Oil Council chief executive, Tan Sri Dr Yusof Basiron, said Malaysia would continue its sustainable practices to supply quality palm oil supply to meet world food demand especially in poor countries.
Malaysia is the world’s second largest palm oil producer and the biggest exporter.
He said palm oil cultivation was on agriculture-approved land and not at the expense of deforestation as argued by environmental groups.
“Every plantation in Malaysia is licensed, we can track the source of the production. This must be urgently understood to differentiate Malaysian palm oil vis-a-vis other competitors and regions,” he said.