Palm Oil Seen Advancing 16% by Year-End as China, India Recover

Palm oil, the world’s most-used cooking oil, may climb 16 percent this year as economies rebound in India and China, the biggest importers, the Indonesian Palm Oil Association said.

Palm may rise to $1,000 a metric ton by the year-end, the highest price since September, after trading between $800 and $900 in the first half, Fadhil Hasan, executive director at the growers’ group, said in an interview in Jakarta on Feb. 5, referring to cargoes delivered in Rotterdam. The rate was $862.50 yesterday, according to data compiled by Bloomberg.

Prices of the commodity used in everything from candy to instant noodles and fuel jumped 15 percent since reaching a three-year low in December as production in Indonesia and Malaysia, the largest suppliers, entered the low output cycle. Futures in Kuala Lumpur may rally 12 percent through the final quarter, says Abah Ofon, an analyst with Standard Chartered Plc. Dwight Anderson, founder of hedge fund Ospraie Management LLC, said in December palm was one of his top commodity picks.

“Demand is still fairly strong this year,” supporting prices, said Hariyanto Wijaya, a Jakarta-based analyst at PT Mandiri Sekuritas, part of the country’s biggest lender by assets. “Buying will be sustained” even after India increased import taxes and China tightened quality controls, he said. India introduced a 2.5 percent tariff on foreign purchases last month and China toughened inspections.

Expansion in China will accelerate to 8.3 percent through the third quarter while India’s growth may rise to 6.3 percent in the final three months from 5.25 percent a year earlier, according to economist estimates compiled by Bloomberg.

Record Shipments

Indonesia may increase palm production by 5.7 percent this year to 28 million tons from 2012, said the growers group, known as Gapki, on Jan. 8. Shipments are set to climb to a record 20 million tons from 18.2 million tons, it said. The country has about 8.7 million hectares (21.5 million acres) of plantations, with 42 percent owned by smallholders cultivating less than 25 hectares, said Hasan. Sumatra supplies about 65 percent of production and Kalimantan 30 percent.

Producer inventories may curb price gains. Stockpiles in Indonesia have increased to about 4 million tons, said Hasan, while reserves in Malaysia probably stayed near a record in January at 2.53 million tons, according to a Bloomberg survey.

The rally “will depend on the recovery of world economy,” said Hasan. Consumption may also gain on increased use for biodiesel if Europe can overcome the crisis, he said.

More Ports

Indonesia, the biggest economy in Southeast Asia, needs to build more roads and ports to support growth of its palm industries including in Kalimantan on Borneo island, said Hasan.

“The infrastructure when we had output of 10 to 15 million tons is the same when production was around 20 million tons,” he said. “There’s not much improvement.” Some Kalimantan producers must ship palm to Belawan and Dumai ports on Sumatra because of lack of facilities, he said.

Indonesia will probably maintain its export tax policy even after a proposal from Gapki to cut duties, Hasan said.

“The government policy is not only to encourage the downstream industry but also to generate revenue,” he said. Gapki proposed taxes of 5 percent to 10 percent for crude palm and zero to 2.5 percent for refined products, he said. That compares with a range of 7.5 percent to 22.5 percent now for crude and 2 percent to 10 percent for refined. The crude tax rate for February is 9 percent.

Indonesia will maintain its export tax policy for now, Deputy Trade Minister Bayu Krisnamurthi said in a mobile-phone text message yesterday. “Response to market developments is important, but maintaining policy consistency is also important,” he said.

Malaysia announced export tax changes last year to reduce inventories, resulting in a zero tariff for January. The same rate was extended to February and may remain the same in March if prices stay below the threshold of 2,250 ringgit, according to Plantation Industries & Commodities Minister Bernard Dompok.

Futures on the Malaysia Derivatives Exchange, the global benchmark in Kuala Lumpur, rose 0.2 percent to 2,551 ringgit ($825) a ton yesterday.

(Source: Bloomberg)