Palm Seen by Mistry Extending Bull Market as Reserves Shrink

(Bloomberg) – Palm oil will probably climb more than 12 percent, extending a bull market, as inventories contract in Malaysia and Indian imports expand, according to Dorab Mistry, director of Godrej International Ltd.

Futures “will comfortably exceed” 2,500 ringgit ($749) a metric ton after March as stockpiles in Malaysia, the world’s biggest producer after Indonesia, decline through June, Mistry said. His earlier target of 2,300 ringgit by Dec. 10 will be exceeded because of the weakness of the Malaysian currency, he said in remarks prepared for a conference in China today.

Palm, used in cooking and biofuel, entered a bull market after Indonesia and Malaysia scrapped export taxes to boost demand. Yields in those countries started to drop in September because of the delayed impact of drought and dryness now will cut output in 2015, says Oil World, a Hamburg-based researcher. Lower output means reserves probably peaked in October and will fall in the first half, Mistry said. He kept his prediction for prices to reach 2,500 ringgit by March 4.

“I expect BMD CPO futures to rise steadily as production declines begin to bite,” Mistry said, referring to crude palm oil on the Bursa Malaysia Derivatives. “Beyond March 2015, I expect vegetable oil prices to keep up a gradual improvement.” Mistry has traded the commodity for more than three decades.

Futures fell 1.3 percent to 2,223 ringgit on the Bursa in Kuala Lumpur today. Prices settled at 2,336 ringgit on Nov. 3, exceeding an increase of 20 percent from the 1,929 ringgit close on Aug. 29 needed to meet the common definition of a bull market. The ringgit has dropped about 6 percent against the dollar since the end of August.

Zero Taxes

Prices fell to 1,914 ringgit on Sept. 2, the lowest since March 2009, after slumping into a bear market in July. The plunge prompted Malaysia to scrap an export tax for two months through October and extend the exemption to December. Indonesia also cut taxes on most exports to zero for October and November. The two countries supply 86 percent of global output, the U.S. Department of Agriculture estimates.

Futures may revisit the five-year low if “we have massive soybean crops in Brazil and Argentina,” or palm oil has a “counter-cyclical surge in production” from November to March, or there’s a financial market crash, Mistry said. Brazil is the biggest soybean grower after the U.S. and Argentina is the top soybean oil exporter, USDA data show.

Inventories in Malaysia probably increased to 2.14 million tons in October, the highest since March 2013, according to a Bloomberg survey. Output fell for a second month after reaching a record 2.03 million tons in August, it showed.

Indian Demand

While exports probably fell 4.9 percent in October, according to the survey, Mistry said a slow start to India’s crushing season would boost demand for overseas supplies. The country may import a record 12.3 million tons of vegetable oils in 2014-2015, with palm oil purchases rising 13 percent to 8.75 million tons from a year earlier, he said.

Prices may reach 2,500 ringgit in the first quarter as import demand increases and production shrinks because of dry weather, Oil World said in a report e-mailed Nov. 4. Parts of central and southern Sumatra and Kalimantan, important growing regions in Indonesia, suffered from dryness in recent weeks, while parts of Malaysia had below-normal rainfall in September and the first 20 days of October, it said.

The current dry spell in Kalimantan is entering its fifth month and needs watching, Mistry said. He predicted last month that Malaysian production may have peaked in August and the lagged impact of a six-week long dry period in February-March may trim output to between 19.6 million tons and 19.8 million tons this year, while Indonesian output may reach 30 million tons at best.