Palm Oil Set For Bear Market As Record Soybean Reserves Loom
Rabu, 16 Juli 2014 | 08:10
Futures dropped as much as 1.3% to 2,316 ringgit (US$729) a metric ton on the Bursa Malaysia Derivatives, the lowest level since Oct. 7. A close at 2,320 ringgit would be 20% less than the 2,901 ringgit settlement on March 10, meeting the common definition of a bear market. Prices ended the morning session at 2,318 ringgit. Palm, used in everything from food to biofuels, slumped 13% this year as usage in biodiesel trailed estimates amid expanding production. Record stockpiles of soybeans are adding to a global glut of cooking oils as increasing supplies send prices of corn and wheat into bear markets, cutting world food costs measured by the United Nations for a third month in June. Petroleum prices have also dropped for three straight weeks.
“The declines in soybean oil and crude oil will weigh heavily on palm,” said David Ng, a Kuala Lumpur-based derivatives specialist at Phillip Futures Sdn. “The spread between soybean oil and palm oil has narrowed quite significantly and a lot of buyers are shifting to other alternatives, mainly soybean oil and sunflower.”
Palm oil’s discount to soybean oil narrowed 70% in the past year to about US$84 a ton, data compiled by Bloomberg show. That’s encouraging refiners in India, the world’s largest palm buyer, to turn to soybean and sunflower oils. India’s palm imports probably fell for a second month in June to 625,000 tons from a year earlier, a Bloomberg survey showed last week.
Futures may rally less than earlier forecast as demand misses estimates and an El Nino starts later than expected, according to Dorab Mistry, director at Godrej International Ltd. Prices may climb to 2,800 ringgit by December if the weather event occurs from mid-August, Mistry said on June 26, cutting his March forecast for an increase to 3,500 ringgit.
Production in Indonesia may reach a record 30.5 million tons or more this year while Malaysia’s output will total an all-time high of 19.7 million tons to 19.9 million tons, according to Mistry. The two Southeast Asian producers together account for 86% of world supplies.