Palm Oil Prices to Surge in 2010 on Back Of Higher Demand, Supply Disruptions

Palm oil, little changed, may extend a four-week rally on speculation demand will remain robust in India and China, the biggest consumers of the edible oils.

“Production has peaked this year and we’re entering the seasonal low-production period. The bigger concern is the coming El Nino, which will affect production in the second half of 2010,” Mistry said.

Palm oil prices are poised to rise “sharply” next year amid potential supply disruptions from El Nino, Dorab Mistry, director of Godrej International, said in an interview in Bali on Wednesday. Consumption in China and India is increasing and “rising from an already high base,” he said.

February-delivery futures rose as much as 0.6 percent to 2,510 ringgit ($743) a ton on the Malaysia Derivatives Exchange. The most-active contract traded at 2,494 ringgit at 4:08 p.m. local time. Earlier, the price fell as low as 2,480 ringgit.

Mistry, who correctly predicted last month that futures would reach 2,400 ringgit a ton by the first quarter of 2010, said prices may even climb as high as 3,000 ringgit by the end of next year if crude oil advances to $100 a barrel. Mistry said he would issue another price forecast on Friday.

A drought in Indonesia’s Kalimantan region points to lower crude palm oil production, Pongrat Ratanatavanananda, an analyst at Bualuang Securities, said on Wednesday in a report. Palm oil may rise as much as 6 percent in the first quarter of next year, Derom Bangun, vice chairman of the Indonesian Palm Oil Board (DMSI), said in an interview at the Bali conference.

The weakest monsoon in almost four decades in India this year damaged rice and oilseed crops. Soybean and corn harvests in China may shrink because of drought and cold weather, the US Department of Agriculture’s Foreign Agricultural Service said on Nov. 23.

“A smaller harvest and strong demand will reduce palm oil supplies in Indonesia and Malaysia. At the same time, exports to India and Pakistan should remain strong, as drought in India threatens the output of oilseeds,” Ratanatavanananda said.

Malaysia’s palm oil exports jumped 1.8 percent in November to 1.46 million tons compared with October, Societe Generale de Surveillance said on Monday. Official data normally comes from the country’s palm oil board on the 10th of each month.

Indonesia and Malaysia make up 87 percent of global output of the tropical oil. Indonesia has the potential to more than double the area of land producing palm oil, Agriculture Minister Suswono said at the Bali conference.

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