Palm oil futures rose back above 2,600 ringgit a tonne as the
Malaysian Palm Oil Board trimmed expectations for Malaysia's inventories,
chiming with broader upbeat comment on prices of the vegetable oil.
Palm oil futures for April, the benchmark contract, closed up
1.1% at 2,603 ringgit a tonne in Kuala Lumpur, extending to 4.4% a revival in
prices from a two-month low set last week.
The recovery reflected an estimate from Choo Yuen May, the Malaysian
Palm Oil Board's director-general, that inventories in the world's
second-ranked producing, and exporting, country would end the year at 1.6m-1.8m
The board, Malaysia's palm industry regulator, had
previously estimated end-2014 stocks at 1.76m tonnes, in itself a reduction
from the 1.99m tonnes at which they ended last year.
'Exports to improve'
Dr Choo attributed the estimate to demand spurred by prices
which remain low by the standards of 2012 and 2011, when futures hit 3,967 ringgit
a tonne, and in particular from the biofuels industry.
"Exports are expected to be better as crude palm oil price
stabilises and higher demand comes in from the biodiesel industry," she said.
Malaysia intends to lift to 7%, from 5%, the mix of palm
oil-based fuel in domestic diesel.
Indonesia, the top palm producing country, is raising to 10%
the mandated blend of biodiesel in forecourt fuel, with power utilities obliged
to use a 20% mix.
'Price may well
The comments chimed with those released separately by REA
Holdings, the London-listed palm oil group which is listed in Indonesia.
While Rotterdam palm oil prices had fallen by more than $50
a tonne so far this year to some $850 a tonne, in part a reflection of a
stronger dollar against the ringgit, "with increases in the government mandated
biodiesel component of transport fuel in Indonesia, Malaysia and Argentina, it
may reasonably be expected that any further [price] decline will be limited.
"Indeed, the price may well recover, although much will
depend on the level of 2014 soybean crops."
Soybeans are the source of soyoil, a major rival to palm oil
on vegetable oil markets, and indeed the primary feedstock for biodiesel in the
In London, broker VSA Capital forecast "palm oil price
strength… at least into the early months of this year", boosted by buoyant
demand prospects at a time when production in Indonesia and Malaysia is in
"Malaysian stocks are likely to remain below the
psychological 2.0m-tonne mark," VSA analyst Edward Hugo said.
"As we progress through the rainy season, any stockpile
increase is likely to be muted."
Besides from biodiesel, palm oil demand stands to be boosted
by anti-dumping duties imposed on biodiesel from Argentina and Indonesia, "increasing
demand for feedstocks, including palm oil".
In the US, the withdrawal by food safety officials of the "generally
recognised as safe" classification from partially hydrogenated oils, or so-called
trans fats, "could boost demand for palm oil, at the expense of competitors
such as soyoil", Mr Hugo said.
'Bullish case wins
While the prospect of strong world soybean production did
represent a negative for prices, "balance, we feel that the bullish case wins
out and that the palm oil price strength will continue, at least into the early
months of this year", he said.
"We think CIF Rotterdam crude palm oil will initially push
through $950 a tonne, before paring back in the second half, but remaining
above $900 a tonne, to produce an average for the year of approximately $950 a tonne."