Palm oil prices could fall 13 pct by Jan 2014 as output surges-Mistry

September 22, 2013

* Rising bio fuel demand to be fed by increased production

* Contrarian view to leading analyst Fry who sees price rises

* Indian refiners pushing for imports of alternatives

By Rajendra Jadhav

MUMBAI, Sept 22 (Reuters) - Increasing demand from the bio fuel industry is unlikely to take crude palm oil (CPO) prices out of a 2,200-2,400 ringgit range in the next few weeks and there are chances prices could hit a four-year low of 2,000 ringgit in January 2014 if Brent crude drops below $100 per barrel, prominent industry analyst Dorab Mistry said on Sunday.

Crude palm oil is being used increasingly as an additive in fossil fuels, as it can cut costs and reduce environmentally damaging emissions. But production is also rising as farmers in top producers Indonesia and Malaysia plant more of the crop.

Global palm oil production in the vegetable oil year starting from Oct. 1, 2013, is set to rise by 3.5 million tonnes over the current year, Mistry, who is head of vegetable oil trading with Indian conglomerate Godrej Industries, told the Globoil India conference.

Global demand for palm oil from the bio fuel industry is likely to rise by 2 to 2.5 million tonnes, while demand from the food industry could rise by 3 million tonnes, he said.

"Despite the expansion of demand due to bio fuels, I do not expect a bull market," Mistry said in a speech at the Globoil India conference.

Rising demand from the biofuel industry could keep crude palm oil (CPO) prices <0#FCPO:> in a narrow range of 2,200 to 2,400 ringgit in the short term, Mistry said.

But by January 2014, they could fall 13 percent from current levels to 2,000 ringgit, if Brent crude falls below $100 per barrel and prospects of a bumper soy crop in South America surface.

A contrarian view was put forward on Saturday by James Fry, chairman of commodities consultancy LMC International, who said CPO prices may rise nearly 9 percent to 2,500 ringgit per tonne by February 2014 from current levels as Indonesia's inventories will fall now it has decided to promote biodiesel consumption.

On Friday, benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange had lost 0.9 percent to close at 2,297 ringgit per tonne, bringing prices down 6 percent so far in 2013, after a plunge of 23 percent in 2012.

"The fundamentals of the oilseed and vegetable oils complex are clearly bearish. They can turn bullish only with a major weather problem," Mistry said, as the peak palm oil production season comes in the next few months and bumper output of soybean and sunflower is expected.

Oil palm trees in Indonesia and Malaysia - the world's top producers that make up about 90 percent of global palm oil supply - typically produce more fruit in the second half of the year after resting in the first half.

Mistry lowered his figures for palm oil output in Malaysia and Indonesia by about 2 percent and 3.3 percent respectively for the calendar year 2013 as the start of the higher production cycle was delayed.

But he expects a consistent rise in inventories in Malaysia and Indonesia for the next several months from September.

India, the world's biggest importer of palm oil, could see demand stagnating as local buyers turn to soy oil and sunflower oil alternatives to supply domestic refiners who cannot compete on refined palm oil with cheap exports from producing countries.

In the 2013/14 edible oil year starting from Nov. 1, 2013, Mistry estimates India's imports of palm oil at 8.3 million tonnes, compared with 8.35 million tonnes in 2012/13.

"Indian refiners are the gate-keepers to the Indian market. They determine which oil is to be imported and processed. If they face competition from processed and refined palm oil imports, will they import more palm or will they import more unrefined soft oils?"

India's vegetable oil production in 2013/14 is likely to rise by at least 500,000 tonnes from this year, he said. (Editing by Jo Winterbottom and Robert Birsel)