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Palm oil prices could be lifted by the expansion of pure biodiesel (B100) capacity in Southeast Asia, as well as crop failure in other parts of the world, said veteran trader Dorab Mistry.
“If there are new biofuel announcements [in Southeast Asia], [prices for] palm will go higher because palm is the oil of first choice at the moment in this part of the world for biodiesel. Indonesia has been a scintillating success from its biodiesel policy. Malaysia needs to do more,” said Mistry, who is a director at Godrej International Ltd.
Malaysia, the world’s second-biggest producer of palm oil, is currently implementing the B10 biodiesel programme for the transportation sector, which requires the mandatory use of 10% palm oil. It is mulling an expansion of the programme to the industrial sector but has yet to make a final decision.
Indonesia has progressed faster and is currently implementing the B35 biodiesel programme, which mandates a blend of 35% plant-based biodiesel and 65% fossil fuel diesel.
Mistry pointed out that crop failure in North America and Europe as well as a drought in India would impact the palm universe in terms of price outlook.
“The biggest bullish possibility is the North American weather, particularly in the April to July window. If you have higher-than-expected temperatures and lower-than-expected rainfall, which is the forecast at the moment, yields will be affected,” he said at the Palm & Lauric Oils Price Outlook Conference & Exhibition on Wednesday.
“It doesn’t matter how much the yield is affected, the psychological impact of that on the market is immediate and terrific,” he said.
His forecast is for crude palm oil to trade between RM3,900 and RM4,500 from March until June 2024 but did not give any projection for the second half of the year. “You cannot be bearish on agricultural prices, given climate change and the capricious climate that we have all come to see”.
He expected palm production to be a laggard in 2024, with Indonesia’s production reducing by at least one million tonnes and Malaysia’s production remaining unchanged.
“The canary in the coal mine is the refining margin. When the refining margin turns negative, it tells you that [the supply of] crude palm oil is tight because availability production is just not there,” he said.
Source: The Edge Malaysia
