November 1, 2019 / 12:14 PM / 11 days ago

UPDATE 1-Palm prices outlook revised up as output disappoints, B30 sparks buying

* Indonesia’s B30 will happen - analyst Mistry

* Analysts warn of global stockpiles tightness (Recasts with industry analysts’ outlook revision)

By Fransiska Nangoy

NUSA DUA, Indonesia, Nov 1 (Reuters) - Top palm oil industry analysts on Friday revised up their price outlook for the edible oil, pointing to reduced production and optimism that Indonesia’s so-called B30 biodiesel programme will help bolster demand.

Analysts, however, warned that fully implementing the B30 programme might be tricky for the world’s top exporter Indonesia an output slowdown is expected to persist into 2020.

Indonesia, the world’s biggest palm oil producer, has a target of implementing a mandatory ‘B30’ programme - meaning biodiesel with 30% bio-content - from 2020.

That represents expansion from the ‘B20’ mandate for 20% bio-fuel content and would be the highest bio-content ever used in a transport fuel.

The benchmark palm contract in Malaysia posted a fourth weekly gain, hitting a 19-month high earlier this week.

Dorab Mistry, director of Indian consumer goods company Godrej International Ltd, told an industry conference on Friday that the palm market started rallying after Indonesia released its biodiesel allocation decree indicating 9.59 million kilolitres (KL) of biodiesel consumption next year.

Since then, sentiment had been “red hot”, Mistry said, as he revise up his price outlook for Malaysian palm oil to 2,700 ringgit ($648.57) per tonne in March 2020, from an earlier estimate of 2,500 ringgit per tonne.

The biodiesel policy came as palm oil output slowed due to drought, a haze produced by forest fires, and a cut back on fertilizer use due to low palm prices in the past few years, said James Fry, chairman of consultancy LMC International.

Fry estimated that European crude palm oil prices would climb to more than $700 per tonne in the first-quarter of 2020, as lower-than-expected output and use of supplies in biodiesel squeeze stocks, he said on Friday.

Palm oil prices could then surge to $750 per tonne in the second quarter.

PRICE ADJUSTMENT

In September, Fry had estimated European crude palm oil (CPO) prices to rise to $620 per tonne, or $570 on a free-on-board basis, by the second quarter of 2020.

“The very recent leap in CPO prices has made a large part of the price adjustment that I thought would only occur in early 2020,” Fry said, addressing the conference.

“This price readjustment happened because the outlook for CPO output is definitely less upbeat than one might have expected from maturing areas planted during high price years,” he said.

CPO prices in Rotterdam closed at $660 per tonne PALM-MYCRD-C1 on Thursday, while Malaysia’s palm oil futures hit a 19-month high this week.

Biodiesel mandates are not only increasing in Indonesia, Fry said, but also in Malaysia and Thailand, driving overall demand.

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

“As a result, the growth in world (palm oil) output in 2020 will be overtaken by the growth in demand,” Fry said.

Indonesian biodiesel demand will rise to 8.5 million tonnes next year, he said, predicting the country’s exports of the fuel would be very limited.

Thomas Mielke, editor of World Oil, expects world palm oil stocks to fall by 2-3 million tonnes in the next 12 months, from September’s 14.7 million tonnes.

He warned that the biodiesel programme may contribute to further tightening in global palm oil supply as Indonesia would require an additional 2.6 million tonnes of palm oil to meet demand for fully-implemented B30.

“This additional ... 2.6 million tonnes on top of the domestic consumption would create a tightness in the Indonesian market and would make it very difficult for Indonesia to raise exports to the world,” Mielke said.

Meanwhile, he expected palm oil output to increase by a mere 1.5 million tonnes in the next 12 months. He raised his outlook for the Indonesian palm oil price to an average $600 per tonne in January-June from an earlier estimate of $580 per tonne.

$1 = 4.1630 ringgit Reporting by Fransiska Nangoy; Editing by Kenneth Maxwell and Emelia Sithole-Matarise

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