Palm oil is headed for 3,300 ringgit per metric ton by March, sooner than forecast earlier, as stocks of the tropical oil remain tight. Prices will then fall nearly a quarter by June or July, said leading vegetable oils analyst Dorab Mistry on January 21.
Benchmark palm oil prices are now trading at their highest in more than four years as lingering dry effects from an El Nino weather event in 2015 are still cutting into production.
Palm oil closed 1% lower at 3,101 ringgit (US$698) a metric ton on Friday evening.
Mistry said prices would rise between now and early March, because of the weak inventories and low production, with soybean oil filling in the gap between supply and demand.
“Soybean oil must take market share from palm oil, otherwise palm oil stocks will decline to unimaginable levels. End-January stocks will be very tight,” said Mistry, referring to Malaysian inventories.
Prices for the March soybean oil contract on the Chicago Board of Trade (CBOT) have declined in the past month, narrowing their usual premium above palm oil prices.
Soybean oil’s spread over palm oil was around US$82 on Friday evening, down from US$150 in early December.
Mistry, director of Indian consumer goods company Godrej International, said, however, that palm prices would fall after March to 2,500 ringgit by June or July, higher than an earlier prediction of 2,400 ringgit.
His medium-term forecasts assume Brent crude oil prices in a range of US$50 to US$70 a barrel and two rate rises by the Federal Reserve this year.
“The market will give a knee jerk reaction at the first signal of rising production – possibly in early or mid-March,” said Mistry.
“Support for prices may come from a new U.S. biodiesel regime. That is the big unknown at present,” Mistry said, explaining why he raised his mid-year price forecasts.
“Biodiesel [production] boosts CBOT soybean oil futures, which then help palm futures,” he said.
Palm oil output in 2017 from Indonesia, the world’s largest producer, was also pegged at 33.5 million to 34 million metric tons, up from the 33 million to 33.5 million metric tons previously forecast.
Mistry said lauric oil prices would decline from the third quarter of 2017. He previously said the drop would take place by the second quarter this year.