Ongoing weather uncertainties and expanding biodiesel demand are expected to drive palm oil market, according to Dorab Mistry, London-based Director of Godrej International Ltd. He was addressing the Palm and Lauric Oils Price Outlook 2014 conference here on Wednesday. Crude palm oil futures need to quickly scale up to ringgit 3,000 a tonne to control demand and enable stocks in Malaysia and Indonesia to be maintained at a workable level, he said.

“Prices should not rise beyond ringgit 3,000/tonne unless climatic conditions change for the worse,” Mistry said.

However, if rains return and the situation turns normal, prices will trade between ringgit 2,600-2,900 during July-October as the production high cycle kicks in from July. In the event of El Nino developing, prices of palm oil futures may cling to MYR 3,000 beyond June and may rise to MYR 3,500/tonne. This would kill discretionary biodiesel demand, especially in Indonesia where a mandate has been put in place.

Mistry estimated incremental demand for vegetable oil at 6.5 million tonnes (mt) and incremental supply at 6.5 mt, following a large rebound in oilseeds production represented by soyabean, sunflower and rape seeds.

James Fry, LMC International, pointed out to the tug-of-war between soft oils and palm oil to garner market share. Referring to the relationship between crude oil and vegetable oil prices via the biodiesel route, he said if Brent crude stays at $110 a barrel, palm oil prices in Europe should reach $1,030 a tonne with Bursa Malaysia Derivatives’ futures just above MYR 3,000. But, pressure from other oils will stop it there.

Crude palm oil is currently trading over MYR 2,800/tonne. Clearly, how weather conditions will pan out over the coming days and weeks will determine price movement. From April, pressure from South American supplies can be expected.

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