BALI, Indonesia: It was lukewarm reception at the Indonesian Palm Oil Conference (IPOC) 2015 as the vegetable oil analysts, gave moderate forecast that palm oil prices are likely to trade between the band of US$550 to US$770 per tonne by mid-2016, from the current US$540 per tonne.
As some 1,000-odd participants settled down in the hall, Hamburg-based ISTA Mielke GmbH executive director Thomas Mielke, lifted the mood in the hall when he said food demand for palm oil is set to rise in the months ahead and that high stocks in Malaysia and Indonesia of close to six million tonnes will come down sharply by mid-2016.
He went on to say the El Nino conditions in Malaysia and Indonesia were the strongest two months ago. Coupled with rising global demand for palm oil in the months ahead, “We are going to see more global demand shift to palm oil and I see it coming from the food sector,” he said today.
Mielke predicted that next year, Malaysia’s palms would be hit by severe stress of drought and oil supply is likely to stagnate at 19.5 million tonnes. As for Indonesia, he maintained his forecast that output would remain at 33.6 million tonnes.
“Depending on the severity of El Nino, palm oil prices could rise as high as US$750 and US$770 per tonne in the next six months,” Mielke said.
Indonesian Palm Oil Producers Association or Gabungan Pengusaha Kelapa Sawit Indonesia (Gapki) executive director Fadhil Hasan was next to take the stage.
He noted Indonesia is encouraging biodiesel usage to create higher demand for palm oil, which is used for blending into biodiesel. The world's top palm producer began collecting a US$50 per tonne levy on crude palm oil exports since July to fund higher biodiesel subsidies.
The Indonesian Estate Crop Fund, known as the CPO supporting fund, was established a few months ago to collect levies imposed on palm oil exports. It is being used to subsidise the price of the fuel national oil company Pertamina.
Earlier this week, Pertamina signed on with 11 biodiesel producers to blend 1.8 million tonnes of palm methyl ester into regular diesel and sell it throughout Indonesia in the first half of 2016.
In view of this, Fadhil gave a conservative forecast that next year, palm oil prices could rise to between US$580 and US$600 per tonne.
LMC International Ltd chairman Dr James Fry concurred with Fadhil that rising biofuel mandates in Indonesia and Malaysia would provide support to palm oil prices. He then reiterated his long-held view that palm oil prices would continue to be highly influenced by petroleum prices.
“Since 2007, the link between vegetable oil prices and petroleum has been very robust,” he said. "Should we see a full blown El Nino panning out further into 2016, we can expect CPO prices rising to US$600 per tonne by the end of the first quarter.”
Ganling Sdn Bhd director Ling Ah Hong noted the El Nino drought has started to cause bunch failures, floral abortion and gender differentiation among palm trees.
"So far, we're seeing parched soil in south and east Kalimantan, multiple unopened spears in palms planted across Kalimantan. Towards the south of Borneo island, we're seeing more male flowers," he said.
Ling then said palm oil prices may recover by the end of first quarter or early second quarter of 2016 when the impact of El Nino starts to bite. He went on to say palm oil prices tend to react positively whenever the El Nino phenomenon is experienced.
"In the last nine episodes since the 1980s, the average palm oil monthly price rose by between 15 and 100 per cent. Next year, I would think the El Nino phenomenon is going to cut Malaysia's supply by 600,000 tonnes and Indonesia's output by 2.2 million tonnes. This would support prices at the band of US$550 and US&700 per tonne."
For the past two months, palm oil futures have been hovering around RM2,300 per tonne. Yesterday, the third month benchmark palm oil futures on Bursa Malaysia Derivatives closed RM20 higher at RM2,361 per tonne.
Dorab Mistry, director at Godrej International Ltd, recommended investors to buy plantation companies shares in the equity market to profit from a rebound in prices.
"Plantation counters, especially the ones which are integrated with their own cooking oil brands are looking very attractive now. Outlook is bullish in the next two or three years because planted area has not really expanded and global demand for palm oil is still growing."
"If Indonesia really consumes three million tonnes of palm oil in their biodiesel mandate, prices would rise and I think to the region of US$600 per tonne," he said.