Palm oil prices likely to recover at weaker pace

KUALA LUMPUR: Palm oil prices, which have lost about 8% so far this year, are expected to grow at a weaker pace as rival soyoil eats into the vegetable oil market following a bumper US and South American soybean crop.

Palm oil, a reddish brown oil, is used in a variety of products ranging from ice-cream and soap powder to biofuels.

It is the world’s most traded vegetable oil, with research group Oilworld forecasting global palm oil consumption at 47.45 million tonnes for the marketing year beginning October 2009 compared to soybean oil demand at 37.71 million tonnes.

Benchmark crude palm oil futures on the Bursa Malaysia Derivatives Exchange hit an all-time record of 4,486 ringgit in early March 2008 and then tumbled to a low of 1,331 ringgit in October the same year at the height of the financial crisis. It is now trading 44% below record levels.

Indonesia, the world’s top palm oil producer, has projected output in 2010 to reach 23 million tonnes, up from 21 million tonnes last year.

Malaysia, the world’s No. 2 palmoil producer, may see production increase by 3.4%, to 18.1 million tonnes this year, on the weaker impact of the El Nino weather condition, which usually brings drier weather.

Malaysia’s exports gained 2.9% to 15.87 million tonnes last year against 15.41 million in 2008. China is Malaysia’s largest palm oil buyer, followed by European Union, Pakistan and India.

Nearly 70% of Indonesia’s palm oil sold to overseas market, mainly India and China. Indonesia exports more crude palm oil whereas rival Malaysia ships out mostly higher-value products to support its extensive refinery business.

Major plantation firms producing and selling palm oil include Malaysia’s Sime Darby and IOI Corp as well as Singapore-listed Wilmar International.

Pure plantation players include Malaysia’s IJM Plantations and Genting Plantations as well as Indonesia’s London Sumatra and Astra Agro Lestari.

A free trade agreement between China and the 10-member Association of South East Asian Nations will see China’s import tariffs for palm oil cut to zero and 5% by January 2018 from eight and 9%.