(Dow Jones)–An El Nino-induced dry spell late last year is likely to lower Malaysia's crude palm oil output by 2.3% to around 17.2 million metric tons this year, with prices likely to "scale new heights" from July, top vegetable oils analyst Dorab Mistry said Tuesday. "By an unusual sense of timing, the El Nino-induced damage to Malaysia's CPO output will be felt in the third and fourth quarters of this year…just as the high cycles will be exhausted (by July) and trees will be in need of rest," Mistry said at an international palm oil conference.
An ongoing palm tree replanting initiative by the Malaysian government also means fewer palm fruits will be harvested, affecting CPO output in the world's second-largest CPO producer by volume after Indonesia. "The most bullish period (for palm oil) will be the second half of 2010 to the first quarter of 2011," he said.
The shortage in supply may result in CPO prices scaling new heights "(after July) in the MYR2,800-MYR3,200/ton range," Mistry said. He noted the dry spell may moderate CPO output in Indonesia, which may rise by only 1 million tons in 2010. Indonesia's government put the country's CPO output at 20.5 million tons last year.
A prolonged dry spell lasting two successive months would normally have a delayed impact on oil palm production, reducing palm inventories, and may lead to a rise in prices as buyers may rush to stock up, fearing a shortage in oils. London-based Mistry, who's also a director at Godrej International, said 2009-10 "will be remembered as the year when supply became the dominant price making factor" as the production of other oilseeds, excluding soybean, isn't rising as fast to meet demand.
"Global vegetable oil demand expanded by only 4.5 million tons in 2009. This year, the International Monetary Fund expects the world economy to grow close to 3%…therefore, we must expect food demand for vegetable oils to expand by about 4 million tons at current price levels," he said. New and enhanced biodiesel mandates in Argentina and Brazil as well as the new Renewable Fuels Standard 2 guidelines by the U.S.-based Environmental Protection Agency "make this a bullish year for biodiesel consumption. I expect biodiesel demand to expand by at least 2 million tons," Mistry said.
Expanding biodiesel mandates and a rise in global economies may mean global demand growth of 6 million tons, outstripping global supply growth of 2.9 million tons, he said. Meanwhile, until July, Mistry expects CPO prices to trade in the range of MYR2,600-MYR2,800/ton as the "palm market has a comfortable cushion of stocks for the next few months and this will be helped further by large soyoil supplies coming out of South America."
Traders and analysts estimated Brazil and Argentina, the biggest soybean producers after the U.S., may harvest as much as a combined 120 million to 126 million tons of the oilseed this year as rains boost yields.
Marginal Rise In India's Vegetable Oil Demand Growth
India's vegetable oil imports in the 2009-10 marketing year will rise only 5.2% to 9.1 million tons compared with 37% in the previous marketing year, when poor monsoon rains lowered domestic oilseed crops including groundnuts, soybeans and rice bran, Mistry said. Consumption in the world's second-most populous country after China is expected to grow to around 15.4 million tons in 2009-10, he said.
In the oil year spanning November 2008 to October 2009, India's production of vegetable oils fell to 6.68 million tons from 7.15 million tons the previous year. Low import taxes on unrefined oils and the rupee's strength against the dollar also boosted India's consumption of edible oils to a record 14.7 million tons in 2008-09, surpassing China as the world's top vegetable oil importer.
India's palm oil imports may rise to 7.4 million tons from 6.8 million tons, while soyoil imports may decline to 900,000 tons from 990,000 tons in the current marketing year. India sources palm oil from Indonesia and Malaysia and imports soyoil from Brazil and Argentina.
