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Friday, August 6, 2010

Palm oil prices going on an uptrend again

A combination of a few factors is going to send CPO on an uptrend again. Watch out for plantation stocks.

Catalysts:
  1. Hot and dry weather in US is going to hurt soyabean crops
  2. La Nina floods to disrupt Malaysian and Indonesian palm oil output
  3. Russia's ban on grain exports
  4. Weather disruptions in Canada, Ukraine, Russia and EU to disrupt canola crops

The news:

Source: Bloomberg

Palm Oil Must Surge `Rapidly' to Cool Export Demand, Godrej's Mistry Says

Palm oil must jump by as much as 24 percent to cool export demand as output declines in Malaysia, the second-biggest grower, and weather damages canola crops in Europe and Canada, according to Godrej International Ltd.

“The market needs to move ahead rapidly so that there is time for rationing to set in,” Dorab Mistry, a director at Godrej, said in an e-mail from London. “At 2,600 ringgit, you can’t match demand with supply. And on top of that, the supply is shrinking.”

Palm oil has rallied 13 percent from a seven-month low on July 7 on optimism consumption will increase in Asian nations, which mark festivals in the September quarter, and on concern that weather may disrupt output in Indonesia and Malaysia, the top producers. Malaysian stockpiles touched a 10-month low in June as exports rose, according to the nation’s palm oil board.

“The consumer has got it wrong and is still in denial,” said Mistry. “He is watching as one piece of bad news after another come in each week. At some stage, the consumer needs to get ahead of the game rather than keep fighting the market.”

Mistry, who has traded vegetable oils for more than three decades, correctly predicted in March that palm oil prices would gain in the second half. He said futures may trade between 3,000 and 3,200 ringgit after June. Godrej is one of India’s biggest cooking oil importers.

Tree Stress
“In Malaysia, the effect of El Nino of last year coupled with shortages of labor has meant that the trees are facing a lot of stress during this critical low-cycle period,” Mistry said. “The situation in Indonesia is no better and with the Ramadan season at our doorstep, we can expect a recovery in production only after Hari Raya is completed in mid September.”

October-delivery futures dropped as much as 0.7 percent to 2,571 ringgit ($811) a ton on the Malaysia Derivatives Exchange and closed the morning session at 2,580 ringgit. The price rose 1.1 percent yesterday to close at the highest since April 9.

“Prices right now are just reacting to crude oil,” said Arhnue Tan, an analyst at ECM Libra Capital Sdn. “Another crude oil rally is going to lift all commodities, whether or not fundamentals are positive.”

Crude oil has jumped 14 percent in the past year and reached $82.97 a barrel yesterday, the highest intraday price since May 4. The price fell 0.2 percent to $82.33 at 2:03 p.m. Singapore time.

Canola Damage
Damage to canola crops from weather disruptions in Canada, Europe, Russia, Ukraine and western Argentina may help increase prices of soybean and palm oils, Mistry said. The two vegetable oils account for 60 percent of global supplies and demand.

“The list keeps expanding each week with new problems on the horizon,” he said.

Soybeans have risen for six straight days on concern that unusually hot weather will reduce yields in the U.S., the top grower and supplier of the oilseed. Soybean oil added 1 percent to 42.10 cents a pound yesterday, a 22-month high, boosting its premium over palm oil to $110.9 a ton, compared with an average of $90.97 a ton so far this year, according to Bloomberg data. December delivery futures dropped 0.8 percent to 41.76 cents at 12:11 p.m. in Singapore today.

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