By Rajendra Jadhav and Siddesh Mayenkar
MUMBAI, Sept 21 (Reuters) - Malaysian crude palm oil (CPO) prices are likely to rise nearly 9 percent to 2,500 ringgit per tonne by February 2014 from current levels as inventories in top producer Indonesia are set to fall after it decided to promote biodiesel consumption, a top industry analyst said on Saturday.
"Export taxes reinforce the appeal of turning crude palm oil (CPO) into biofuel for local use inside Indonesia and Malaysia," James Fry, chairman of commodities consultancy LMC International, told the Globoil India conference in Mumbai, the financial capital.
"Today, Indonesian CPO is $105 (per tonne) cheaper than crude oil. Local Malaysian CPO is $75 cheaper than crude oil."
The forecast by the London-based analyst assumes that the price of Brent crude remains at $110 to $115 per barrel until February. Brent is now around $109 per barrel.
Fry added that the premium of soyoil over rival crude palm oil was likely to fall by $70 per tonne to $130 per tonne by February 2014.
Vegetable oil prices benefit from higher crude prices, which make it more economically attractive to use the edible oils in biofuel, seen as a greener alternative to petrol and diesel.
On Friday, benchmark palm oil futures on the Bursa Malaysia Derivatives Exchange had lost 0.9 percent to close at 2,297 ringgit ($725) per tonne, bringing prices down 6 percent so far in 2013, after a plunge of 23 percent in 2012.
Fry expects palm oil inventory in Indonesia to come down to 1.8 million tonnes by February, despite peak production in the next few months, as the country has raised the mandatory amount of biodiesel used in diesel to 10 percent from 7.5 percent.
Stocks in Indonesia are around 2.1 million tonnes now, Derom Bangun, chairman of the Indonesian Palm Oil Board, said on Friday.
Indonesia has faced sell-offs in its rupiah currency due to an unexpectedly large second-quarter current-account deficit. To contain the deficit, the country it trying to limit imports of energy products.
CPO consumption of palm oil in Indonesia is likely to rise to 9 million tonnes in 2014 from an estimated 8.5 million in 2013, Bangun said.
"There is no doubt that fuel use of palm oil (without any official subsidies) is often profitable in Southeast Asia," he said.
"Biofuels in Southeast Asia are defending the CPO price floor ... we have a new factor, Indonesia's large increase to a 10 percent biodiesel mandate, from next January."
Malaysian palm oil stocks are 21 percent down from a year ago, partly due to weak annual output growth, Bangun said.
Although crude palm oil output would peak by November as usual, he added, stocks would not be as much as last year, and Southeast Asian biodiesel demand would soar from next January. (Reporting by Rajendra Jadhav; Editing by Jo Winterbottom and Clarence Fernandez)