Analyst: Palm prices to fall 20pct by year end on output rebound

Crude palm oil (CPO) prices are set to fall about 20 percent by the final quarter of 2017 as production rebounds in the wake of a crop damaging El Nino weather event last year, leading industry analyst James Fry said today.

CPO prices were expected to average RM2,500 per tonne during the third quarter of 2017, before easing to RM2,250 in the final quarter, Fry told an industry conference.

In free on board (FOB) terms, he forecast an average price of US$605 (RM2,690) in the third quarter and US$550 (RM2,245) in the fourth quarter.

Benchmark palm oil prices have fallen over 7 percent since the start of the year when the edible oil was trading around more than four-year highs. Palm was last down 1.2 percent at RM2,859 a tonne.

Fry, the chairperson of commodities consultancy LMC International, said his forecasts were based on conservative 2017 output estimates, and assumed that Indonesia will continue to support palm oil demand to fulfil biodiesel mandates.

He pegged Malaysian output this year at 19.9 million tonnes, from 17.3 million a year ago, and estimated global CPO production growth at "well over 6 million tonnes", pointing to a recovery following an El Nino weather event last year.

"CPO output will soar this year. If 1999 is valid as a guide, Malaysian output will grow 5 million tonnes. I am using a conservative figure of only half this amount," he added, referring to the production rebound after a severe El Nino in 1998.

"As output gathers pace, Malaysian Palm Oil Board stocks will move above 2 million tonnes by July and above 2.5 million tonnes during October-December."

Palm oil end-stocks in Malaysia, the world's second-largest producer of the tropical oil, are forecast to fall to their lowest in six months at the end of February at 1.47 million tonnes, a Reuters poll showed.

Indonesia and Malaysia account for nearly 90 percent of global palm oil production.

Fry forecast that palm kernel oil stocks will also rise and that prices could fall to FOB US$600 (RM2,248) per tonne by the last quarter of the year.

- Reuters