Palm prices seen falling if U.S. cuts biofuel subsidy

A worker piles palm oil fruit into a truck at the palm oil plantation in Langkat regency of North Sumatra province August 11, 2007.

PANAJI, India (Reuters) - Global palm oil prices, which have been on the boil for the last couple of months, could ease from January if the United States cuts incentives it gives to biofuel producers, a leading analyst said.

“Palm oil prices are likely to reach 2,000 to 2,100 ringgit per tonne by March, down from the current levels of around 2,600 ringgit per tonne,” James Fry, managing director of London-based LMC International, told reporters at a conference in India.

“The U.S. may cut subsidies to its biofuel units and if it does that by January global palmoil prices will start softening.”

Palm oil prices in Malaysia touched a record high of around 2,700 ringgits in June as a large chunk of the cooking oil was diverted to produce biofuel amid soaring crude oil prices.

“The subsidy the U.S. government gives is meant to encourage local soybean oil being converted into biofuel. But many people are importing palm diesel instead of using local soyoil to make biofuels,” Dorab Mistry, a leading analyst, said.

“They import palm diesel, mix it with 1 percent local diesel, make the blend, that is biofuel, and collect the subsidy ... We have been expecting the U.S. to stop this misuse of the subsidy for the last six months,” Mistry said.