BLBG:Palm Oil Poised to Resume Decline After Rally, Mistry Predicts
Palm oil, the world’s most-used cooking oil, is poised to resume its decline in the next few days after a natural bounce, said Dorab Mistry, director at Godrej International Ltd.
Prices may drop to $749 a metric ton cif Rotterdam as at that level the export tax in Indonesia, the biggest producer, becomes nil, said Mistry in response to e-mailed questions from Bloomberg. He correctly predicted a slump in futures in July. Crude palm oil was at $800 a ton cif in Rotterdam yesterday, data compiled by Bloomberg show.
Futures on the Malaysia Derivatives Exchange, the global benchmark, have plunged 22 percent since the end of August as slowing demand increases stockpiles in Indonesia and Malaysia, the biggest producers. Falling prices may reduce revenues for companies including Sime Darby Bhd (SIME) and IOI Corp. and help cap increases in global food costs.
“A bounce is to be expected and is natural,” said Mistry. “The market should resume its journey to $749 cif Rotterdam in the next few days. I’m pessimistic about the macro scenario.”
At $749, the export tax in Indonesia falls to zero and palm oil producers there “are actually better off than at present,” said Mistry. “It also means that Malaysian refiners become competitive once again.”
The December-delivery contract rallied as much as 2.3 percent to 2,404 ringgit ($786) a ton and ended the morning at 2,355 ringgit. Futures fell 8.5 percent to close at a three-year low of 2,255 ringgit on Oct. 2. That was the biggest drop for the most-active contract since October 2008.
Tax Proposal
Indonesia reduced taxes last year to boost exports of processed oil, increasing competition for refiners in Malaysia. When prices of crude and refined palm oil and olein drop below $750 a ton, no export duty is imposed.
A proposal to cut export taxes on crude palm oil to between 8 percent and 10 percent from the current 23 percent will be presented to the Malaysian cabinet tomorrow, Plantations Minister Bernard Dompok said late yesterday.
“Indonesian refineries’ competitive advantage comes from their ability to buy CPO cheaper due to the domestic price being adjusted down by the quantum of their CPO export duty,” Alvin Tai, an analyst at OSK Investment Bank Bhd., said today.
The lower crude palm oil prices would give some relief to Malaysian refiners in the short term,Mohammad Jaaffar Ahmad, chief executive of Palm Oil Refiners Association of Malaysia, said yesterday. Even at these prices, Indonesian refiners had an advantage of at least $40 a ton for production costs of refined, bleached and deodorized palm olein, he said.
Stockpiles in Malaysia will continue to expand in October, November and December and may reach as high as 3 million tons by January, Mistry said Sept. 23. Inventories in Indonesia have hovered between 3.5 million tons and 4 million tons since 2010 as against popular estimates of 1.5 million tons to 2 million tons, he said.
To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
