JAKARTA - Malaysian palm oil prices are forecast to fall to 2,100 ringgit ($520.60) a tonne in the next two months due to rising output, putting it at a discount to market rival soyoil, said leading vegetable oils analyst Dorab Mistry on Thursday.
"As production picks up from July onwards, prices will have to decline to a discount of $100 under crude soyoil FOB," Mistry said at a seminar in Jakarta, although prices may initially rise from current levels. FOB refers to free-on-board basis pricing.
"That will enable palm to regain market share and keep stocks under control. 2,100 ringgit is possible (in the) next 60 days," he said, assuming Brent crude oil prices stay in a $75-$85 a barrel range.
Benchmark palm oil prices were flat at 2,315 ringgit a tonne on Thursday, but have lost 4.7 percent for June so far on overall weak demand. [POI/]
Palm oil is currently at a $78 discount with the Chicago December soybean oil contract.
Mistry, who is also the director of Indian consumer goods company Godrej International, said other factors impacting palm oil's market outlook include Indonesia's efforts to increase local biodiesel consumption and currency exchange rates.
He said palm oil could also benefit from the U.S.-China trade war, as China could reduce imports of soybeans from the United States and switch to corn dried distillers grains as a poultry feed ingredient instead of soymeal.
"This switch may create room for larger vegetable oil imports - palm can benefit," Mistry said.
DEMAND SLOWS IN INDIA
More imports of palm oil by China could support demand, which has weakened in recent weeks and dragged on prices. Exports from Malaysia fell 15.7 percent in May from June, according to government data, and cargo surveyors say they have dropped 12.6-14.1 percent over June 1-25. [PALM/SGS] [PALM/AAM]
A slowdown in Indian demand, due to higher import duties and Malaysia's reinstatement of a crude palm oil export tax, had contributed to the recent fall-off in prices, said Mistry.
Last week, palm oil futures hit their lowest since July 2016 at 2,238 ringgit a tonne.
"Every month India imports 800,000-850,000 tonnes of palm," Mistry said.
"We saw shipments to India collapse (in May). At the end of May, palm oil shipped to India from Indonesia and Malaysia was at 470,000 tonnes. That's a drop of almost 350,000 tonnes."
Mistry said he expected India's import volumes of palm to remain stagnant as it would import more price-competitive soyoil and sunflower oil instead. India has set its import duties for crude soyoil and sunflower oil at 35 percent, compared to a 44 percent rate for crude palm oil.
Malaysia in May reinstated an export tax on crude palm oil after four months of duty suspension.
"India was the main reason for the collapse in demand for palm oil. In June we are likely to see the same situation, where shipments to India will only be 500,000 tonnes, not the (normal) 800,000-850,000 tonnes," said Mistry.