Morgan Stanley, StanChart see palm price revival

Standard Chartered echoed Morgan Stanley in forecasting a late-2014 revival in prices of palm oil, and soyoil too, citing the prospect of a recovery in demand from India and setbacks to production of oilseeds, bar soybeans.

The "window of opportunity is closing for edible oil buyers", StanChart said, as it said that "an end is in sight" to the sell-off which has driven Chicago soyoil futures to contract lows, and Kuala Lumpur palm oil futures to a five-year low of 1,954 ringgit a tonne, reached on Monday.

The price decline will "ease in the coming months" heralding a late-2014 recovery which will drive palm oil prices back to an average of 2,400 ringgit a tonne in the first three months of 2015, when soyoil, currently trading at 32.56 cents a pound on a spot basis, will recover to 32.00 cents a pound.

With the soyoil revival expected to kick-in first, the bank recommended a long bet in May 2015 futures, hedged against a short holding in May 2015 palm oil.

Canola concern

The bank acknowledged the boost to supplies of vegetable oils presented by the prospects of record US production of soybeans, the source of soyoil.

StanChart Chicago soyoil and Kuala Lumpur palm oil price forecasts

Q3 2014: 35.50 cents a pound, 2,175 ringgit a tonne

Q4 2014: 36.50 cents a pound, 2,300 ringgit a tonne

Q1 2015: 37.00 cents a pound, 2,400 ringgit a tonne

Q2 2015: 38.00 cents a pound, 2,300 ringgit a tonne

Forecasts for quarter average prices, benchmark futures contract

However, "China's current soybean demand is strong enough to more than match this increase", StanChart analyst Abah Ofon said.

And production of six other major oilseeds, including sunflower seed, rapeseed and groundnuts, will decline by 4m-5m tonnes in 2014-15, after a 12m-tonne increase last season.

"The outlook for Canada's canola production is of particular concern," Mr Ofon said highlighting the wet and cold conditions, which included weekend frost in Alberta, which have "adversely affected harvesting and crop quality.

"Production shortfalls in Canada are likely to dampen China's vibrant canola imports from Canada, which rose more than 40% year on year in the first half of 2014."

Demand boosts

"We expect tighter oilseed supply and lower exportable edible oil surpluses to support demand growth in crude palm oil, with much of this demand apparent in the second half of 2014," Mr Ofon said.

Morgan Stanley palm oil price forecasts

Q3 2014: $720 a tonne

Q4 2014: $780 a tonne

2014 average: $780 a tonne

2015 average: $875 a tonne

2016 average: $925 a tonne

Forecasts for quarter average prices, benchmark futures contract

Orders in this period will be boosted by stocking by Chinese buyers ahead of lunar new year celebrations early in 2015, with India likely to boost its edible oil imports which, for palm oil at least, have been disappointing, falling 20% to 3.7m tonnes in the first seven months of 2014.

With India's inventories of edible oils at ports relatively low, and the weak monsoon boding ill for domestic production, "we anticipate upside risk to India's crude palm oil imports in the second half of 2014, especially between August and October".

The bank forecast a "turnaround in soyoil prices by the end of the third quarter of 2014, and expect crude palm oil to improve in the fourth quarter".

'Might be the highest on record'

In fact, some recovery may have already be occurring, with London broker VSA Capital noting a 67% jump, month on month, to 325,399 tonnes in Indian palm oil imports in the first 20 days of August.

This rise is certainly the highest for the last three years and "might be the highest on record for the first 20 days of a month", VSA Capital analyst Edward Hugo told, flagging the likely role of lower values in whetting demand.

"This demonstrates how price-sensitive the Indian market in particular is and this is largely due to the high proportion of palm oil used for cooking oil."

'Downside appears limited'

The comments follow a forecast from Morgan Stanley on Friday of a late-year revival in, dollar-denominated, palm oil prices, although the bank was downbeat over the prospects of a short-term revival.

"Whilst the recent collapse in pricing has the feel of a selling crescendo, as producers appear to be liquidating stocks at distressed pricing, we believe pricing is unlikely to stage a meaningful recovery before the fourth quarter of 2014," the bank said.

"However, further downside appears limited by the relative pricing support from Brent crude and the biodiesel markets," Morgan Stanley said, echoing ideas from the likes of Oil World over the potential of energy markets to underpin palm oil values.

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