Palm oil is heading for record highs in 2011 on expectations for costly crude oil to bolster biodiesel demand and offset better harvests, keeping up the pressure on countries battling inflation.
Going against the consensus of market players, however, some market participants see the high prices as unsustainable, set to peak in the next few months as the second-half dry season boosts output, especially in top producer Indonesia, which expects an earlier end to rainy weather.
Traders, analysts, refiners and producers told Reuters at a palm oil conference in Malaysia that benchmark palm oil would average a record 3,300 ringgit ($1,088) a tonne this year. This figure is up almost 16 percent from 2008's record average of 2,853 ringgit, and much higher than the 2010 average of around 2,700 ringgit.
Benchmark palm prices have rallied around 30 percent in the past 12 months, on concerns that seasonal heavy rains have disrupted harvesting Indonesia and Malaysia, while major soyoil-exporting nations suffered dry weather. Fund buying and speculative trading have also buoyed prices.
INFLATION ON THE BOIL This is keeping inflation on the boil, even as countries such as Indonesia are seeing March inflation lower than February as food prices led by rice eased, though palm oil and wheat rose.
"In 2011, the most important price-making factor will be energy prices and their effect on biodiesel," said Mistry, who expects prices to jump 11 percent to 4,000 ringgit in the next few weeks on higher crude oil prices. "We must be prepared for volatility like we have never experienced before." This view is echoed by UN economists who expected world food prices to stay high and volatile throughout the year, buoyed by firm oil prices, erratic weather and excessive speculation, sparking fears stockpiling by importers aimed at heading off popular unrest would hit skittish markets.
The benchmark May 2011 crude palm oil contract on Bursa Malaysia Derivatives hit a two-week high at 3,700 Malaysian ringgit ($1,220) a tonne on Monday. ??? Ling An Hong, an official with Ganling, a plantation firm on Malaysia's portion of Borneo island said that while supplies would recover in the second half and return to strong growth next year, "Demand will continue to be robust due to energy demand and stronger consumption in China, and India."
Mistry added a good oilseed crop in India may lead the world's top vegetable oil buyer import only slightly less palm oil, which could limit the price rise although growing per capita consumption may mitigate the declines.