Palm oil expected to hit RM3,600 in H1 next year

06/10/2010 (Business Times) - Palm oil prices can hit RM3,600 a tonne as soon as in the first half of next year, traders say, which would be their highest since 2008 as demand continues to be robust, while supply is hit by erratic weather.

"In the next six to nine months, palm oil prices should trade at around RM3,600 per tonne, if all fundamental factors remain the same," said NextView Sdn Bhd chief market strategist Benny Lee.

He attributed the increase in palm oil prices since July to a weaker US dollar and a stronger yuan.

The last time palm oil prices hit their all-time high, at RM4,486 per tonne, was in mid-2008.

Lee was presenting his take on palm oil price movement at the International Palm Oil Trade Fair and Seminar 2010 in Kuala Lumpur yesterday.

While he foresees several pullbacks and corrections in the pricing in the immediate weeks, Lee was of the view that it will move towards RM2,800 and possibly surpass RM2,950 by the end of the year.

Yesterday, palm oil futures on the Malaysian Derivatives Exchange gained RM29 to close at RM2,705 per tonne. The day before, it fell to a two-week low due to sell-off in the grains markets after a report of huge US corn stockpiles.

India-based Transgraph Consulting Pvt Ltd chief executive officer P.V. Murali Krishna, also present at the event, was bullish on palm oil in the next six months.

"The current price strength is supported by a relative shortage in oil crop output as a result of erratic weather patterns. There's excess rain in the Indian continent but acute dryness in South America. North America has had experienced frost and Europe is not getting enough rain," he said.

Rapid urbanisation in China and India has resulted in lower agriculture activities, forcing these emerging economies to rely on vegetable oil imports.

Malaysia and Indonesia, the world biggest palm oil supplier, stand to gain from the increasing appetite for food from the world's two most populous nations.

"The focus is on Asia. China and India's robust economy and growing population is set to consume palm oil," Murali said.