Standard Chartered, which forecast the late-2013 revival in
palm oil prices, urged caution over expecting a continuation of a rally which
on Monday drove futures to their best close in 16 months.
The bank, which in July correctly called the rebound in palm
oil prices, listed some reasons to be more upbeat on the vegetable oil, including
taking a more upbeat view of Indian demand, which it had seen as a market weak
India's crude palm oil imports rose last year by 8.6% to
8.3m tonnes, underlining the country's place as the buyer, ahead of the
European Union and China.
And "we expect India's strong [palm] consumption to continue",
driven by population growth and higher incomes, and ideas of a potential drop
in domestic output of soybeans, the source of soyoil, the main rival vegetable
oil to palm oil, the bank said.
It quoted a forecast from India's Central Organisation for
Oil Industry and Trade that India's out of kaharif, or summer sown, soybeans
will drop by 500,000 tonnes, "which equates to around a 100,000-tonne loss in
Furthermore, inventories held by Malaysia, the second-ranked
palm producer and exporter, will "tighten in 2014", undermined by a reduced availability of cheap imports from
Malaysia which it uses to bolster supplies, and flat production in Sarawak and
Sabah, the top producing regions.
However, StanChart analyst Abah Ofon urged palm buyers
nonetheless to "lock in crude palm oil prices at current levels to protect
their margins against adverse downside moves in the second quarter of 2014".
The palm oil market faces "stiffer competition" from rival
oils - especially soyoil, given the prospect of a record soybean harvest in
South America, he said, keeping at 2,575 ringgit a tonne his forecast for Kuala
Lumpur palm oil prices this year.
Furthermore, there are concerns that "negative perceptions"
of palm oil are "gaining momentum in parts of Europe based on messaging about
its impact on health and the environment".
Some research links palm oil to higher rates of heart
disease, while the industry has long been the focus of attacks on claims over
the destruction of rainforest to make way for plantation land.
"A large European consumer we spoke to detailed that
consumer perceptions of products containing palm are souring in parts of
Europe, with major retailers choosing to launch CPO-free products," Mr Ofon said.
Palm oil futures on Monday settled at 2,682 ringgit a tonne
in Kuala Lumpur, up 0.7% on the day and the highest close since September 2012.
The rise was attributed to strong Malaysian exports so far
this month, which SGS pegged up 27% on those in the first half of February, underlining
the bumper growth, which rival cargo surveyor Intertek has placed at 32%.
"The revival in exports is mainly caused by tight oilseed
supplies, causing oilseed prices to hike," said Chee Tat at Singapore-based
broker Phillip Futures.
"As such, it provided an incentive to overseas buyers to
switch to palm oil as a cheaper food and biodiesel alternative."
Furthermore, the end of the northern hemisphere winter "will
encourage more buying of palm oil" for biodiesel, hence resulting in higher
demand for the commodity".
Palm oil's relatively high melting point makes it unsuitable
for making biofuels for winter use.