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Palm oil analysts see price rise as China demand shifts; output growth eases

By Fransiska Nangoy and Bernadette Christina Munthe

NUSA DUA, Indonesia (Reuters) - Palm oil prices are expected to improve next year, top industry analysts said, as production growth will ease and China shifts some of its vegetable oil demand to palm due to its trade dispute with the United States.

Prices are near the bottom for palm oil, said industry analyst Dorab Mistry at a palm oil conference in Indonesia. At current ringgit levels, Malaysian futures at around 2,100 ringgit ($504.81) a tonne make palm competitive and can help producers boost exports.

Malaysian palm oil futures fell to their lowest in more than three years on Friday at 2,108 ringgit a tonne.

Leading analyst Thomas Mielke expects palm oil and soy oil prices to rise by $50 to $100 per tonne in the next nine months.

Mielke said global palm oil stocks would peak in November or December this year, before starting to fall in 2019 as growth in output slows.

Mielke reiterated his estimate that Malaysian palm oil prices would trade between 2,200 ringgit and 2,600 ringgit per tonne in the first half of 2019.

Sino-U.S. trade tensions will also push up demand for palm, sapping stockpiles, he said.

"Global dependence on palm oil is going to rise. The soybean oil production growth is slowing down, global demand will increase to shifting to palm oil," Mielke said.

Mistry, however, said the extent of U.S.-China trade dispute's impact on palm is unknown and the spat could be "resolved anytime".

The bigger factor affecting the palm price will be a potential El Nino weather phenomenon that could slash output in Indonesia in the second half of the 2019, said Mistry, who is also the director of Indian consumer goods company Godrej International.

James Fry, chairman of commodities consultancy LMC International, expects world output next year to grow by 2.5 million tonnes, down from an estimated 4 million tonnes this year, mainly due to a slowdown in top producer Indonesia.

"I think growth will be significantly slower for Indonesia, I think it is very hard to have two years of such rapid (growth)," Fry said.

Malaysian palm oil stockpiles will peak by year-end, and are forecast to drop by 750,000 tonnes between December and June, Fry said.

Mielke, meanwhile, forecasts Malaysian production will hit 20.2 million tonnes next year, up from an estimated 19.6 million tonnes in 2018.

Indonesia's 2019 output is forecast at 41.5 million tonnes in 2019, rising from the 39.8 million tonnes expected this year, he said.

Meanwhile, traders should expect India's elevated vegetable oil imports to remain, said Mistry.

"This import duty hasn't hurt consumption, and these duties have not reduce imports substantially. For that, people should not be very optimistic that the Indian government would be in a hurry to reduce these duties," he said.

With an election coming next year, reducing the import tax aimed at helping poor farmers would be political suicide, he said.

($1 = 4.1600 ringgit)

(Reporting by Fransiska Nangoy, Bernadette Christina Munthe; Editing by Joseph Radford and Christian Schmollinger)