European crude palm oil prices to rise to $620/T by Q2 2020- analyst Fry

KUALA LUMPUR/MUMBAI, Sept 26 (Reuters) - European crude palm oil prices are forecast to rise to $620 per tonne, or $570 on a free-on-board basis, by the second quarter of 2020 as stockpiles decline, James Fry, the chairman of commodities consultancy LMC International said on Thursday.

“Crude palm oil (CPO) prices will not move much until Q1, but will then react to the impact of two years of big cuts in fertiliser use, recent droughts, minimal growth in Indonesian output in 2019 and the boost to Southeast Asian biodiesel mandates,” Fry said in a presentation for an industry conference in Mumbai that was reviewed by Reuters.

Benchmark palm oil prices fell to a six-week low earlier this week, and were last at 2,142 ringgit ($510.97) a tonne, down 0.2%, on Thursday, while CPO prices in Rotterdam PALM-MYCRD-C1 were at $535 a tonne on Wednesday.

Fry said palm oil inventories are expected to “follow their usual seasonal pattern and rise till November,” limiting crude palm oil’s premium over crude oil.

“After that, palm oil output will be weak, not only because of its normal monthly pattern, but also because of the cumulative impact of cutbacks in fertiliser use in the past two years and of recent droughts on yields,” said Fry.

“This slowdown of palm oil output will coincide with further growth in biodiesel output in Southeast Asia, forcing down palm oil stocks and raising the EU CPO spread over Brent from $85 per tonne today to $190 by Q2 2020.”

Dry weather and an ongoing haze are expected to impact palm oil production across Southeast Asia and reduce output growth this year, as oil palm trees need moisture for optimal fruit production.

Indonesia and Malaysia, the world’s top two palm oil producers, are also ramping up biodiesel mandates to increase consumption and reduce inventories.

Indonesia currently has a biodiesel mandate of a 20% bio-content, known as the B20 programme, and is aiming to implement a 30% bio-content mandate by January 2020.

Malaysia increased its biodiesel mandate from 7% to 10% last December and aims to implement a B20 programme in 2020.

With the increased mandates, Fry expects Malaysian biodiesel production to hit 1.3 million tonnes this year, while Indonesia’s will reach 7 million tonnes.

“Next year the (Indonesian) government will implement a B30 mandate, lifting its total biodiesel output above 8 million tonnes, though exports will now be limited by EU anti-dumping duties, allowing Malaysian exports to help to meet the shortfall,” he said, adding that Malaysian biodiesel demand would surpass 1.6 million tonnes in 2020.

The European Commission in August imposed duties on imports of subsidized biodiesel from Indonesia. Industry participants believe this could benefit Malaysian biodiesel exports, which may rise to a record this year. ($1 = 4.1920 ringgit) (Reporting by Emily Chow in Kuala Lumpur and Rajendra Jadhav in Mumbai; editing by Christian Schmollinger)