Sipef curtails palm hedging, expecting price rises

Sipef revealed it had curtailed forward sales of palm oil in the belief that a "positive scenario" for prices of the vegetable oil, which hit a 17-month high, could outperform those of rival soyoil.

The Brussels-listed plantations group said that it had so far hedged 36% of its expected palm oil output for 2014, at an average price of $1,001 a tonne, as measured on a CIF basis in the key Dutch port of Rotterdam.

Sipef had, a year ago, in a declining palm oil market, sold 53% of its forecast production at an average price of $936 a tonne.

The greater reluctance to sell ahead came amid company expectations that tighter palm oil inventories, as highlighted by Malaysian data, had created a "positive price scenario".

Palm oil vs soyoil

The forecast reflected in part the dry weather in parts of South America, notably Brazil and Paraguay, which could "impact negatively" production of soybeans - the source of soyoil, an alternative to palm oil in many uses although Sipef acknowledged prospect of record crops.

Furthermore, the group highlighted Indonesia's roll-out of a so-called B10 programme, enforcing 10% blending into forecourt diesel of biodiesel, made from palm oil, as well as other vegetable oils.

"The additional demand from the Indonesian bioenergy mandates will consume almost all additional [palm oil] supply in 2014, which effectively implies there will be no additional oil available for export," Sipef said.

"Therefore it is expected that the traditional discount of palm oil versus soyoil will be minimal, and could even lead temporarily to a premium for palm oil," the group said, adding that it was viewing "positively" prospects for palm oil price development this year.

 'On a bull run'

In fact, palm oil already stands at an, unusual, premium if comparing Chicago's May soyoil futures contract, trading at 40.63 cents a pound, equivalent to $896 a tonne, with Rotterdam palm oil offered at $937.50 a tonne for April-to-June delivery.

In Kuala Lumpur, palm oil futures hit 2,755 ringgit a tonne, the highest since September 2012, before easing to close at 2,755 ringgit a tonne, up 1.7% on the day.

The rise has been driven by further evidence of strong demand for Malaysian palm oil exports, which both Intertek and Societe Generale de Surveillance, the cargo surveyors, estimated on Thursday had risen 17% so far this month, compared with the first 20 days of January.

"Palm oil is on a bull run," Phillip Futures said.

'Will keep supplies tight'

Besides support from greater biodiesel use, and Brazil concerns, the broker highlighted that the current period of seasonal weakness in output from Indonesia and Malaysia, which produce the great majority of world palm oil, "coupled with the prevailing El Nino phenomenon, will keep palm oil supplies tight".

Furthermore, the level of fresh trees reaching maturity, and so boosting output, is "expected to be low due to low volume planting during the growing seasons from several years back.

"As such, low production is likely to buoy palm oil prices."

Rubber price outlook

Sipef said that output at its own palm plantations, in Papua New Guinea, had for third successive year suffered from excessive January rains - which topped 1m.

"Production volumes are currently 16% below expectations, although still 5.3% above January last year," the group said.

The group was less upbeat over prospects for rubber prices, which it said was "suffering from relatively poor economic data" from China, the top importer of the tyre ingredient, allowing stocks to remain elevated.

"High stocks will keep a lid on prices and 2014 will remain a challenging year for the rubber producers," Sipef said, if adding that "the better economic global outlook could spark the car and heavy equipment industry to consume more rubber, particularly at these lower prices".

The group said that it had sold ahead 12% of its forecast rubber output at an average of $2,357 a tonne, compared with figures of 20% and $3,057 a year ago.

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