Malaysia’s palm oil production could slump more than previously forecast as the lingering effects of El Nino curb output in the world’s second-largest producer, Godrej International Ltd’s Dorab Mistry said.
Production could drop by 2 million metric tonnes in the year through to September, Mistry said in remarks prepared for a conference yesterday in Beijing.
That compares with a 1.5 million tonne decline predicted earlier this month. Malaysian output would be “well below” 19 million tonnes this calendar year, while it could total 31 million tonnes in top grower Indonesia, he said.
Palm oil, used in everything from biscuits to lipstick and biofuel, surged to a two-year high this month as the strongest El Nino in two decades hindered growth of fresh fruit bunches in Indonesia and Malaysia, which make up around 86 percent of the world supply.
Mistry maintained a forecast for prices to climb to 3,000 ringgit (US$748) a tonne. Futures on Bursa Malaysia Derivatives traded at 2,752 ringgit by the midday break, up 11 percent this year.
“This El Nino is doing what all big El Ninos do — lowering production and boosting prices,” said Mistry, who has traded palm oil for more than three decades. “I shall not be surprised if the deficit for first half 2016 as compared with the first half 2015 will be in excess of 1 million tonnes.”
Malaysian palm oil stockpiles fell to an eight-month low of 2.17 million tonnes last month, according to Malaysian Palm Oil Board data.
Production slumped to the lowest level since February 2007, the data show.
Inventories might drop to 1.5 million tonnes toward the end of the second quarter, MIDF Amanah Investment Bank Bhd analyst Alan Lim said in a report on Friday last week.
“World stocks will be drawn down dramatically,” Mistry said, raising his forecast for the gap in incremental supply and demand from last year to this year to almost a record 4.3 million tonnes from almost 4.2 million tonnes forecast earlier this month.
“We are already seeing this happen in palm oil in Malaysia and will see this soon happen in Indonesia. Stocks in consuming countries like India and China will also thin down,” he said.
Indonesia’s biodiesel program is “working well,” with about 200,000 tonnes of biodiesel being produced from palm oil each month, Mistry said.
Indonesian palm oil exports were forecast to fall to a one-year low of 1.95 million tonnes last month as the world’s largest palm grower used more of the commodity in biodiesel.
Soybean oil is likely to continue to take market share from sunflower oil and to some extent palm oil, especially if palm prices narrow their discount to soy, Mistry said.
Soybean oil’s premium over palm was about US$61 a tonne from an average of US$104 over the past year, according to data compiled by Bloomberg.
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