The Star

Tuesday - September 25, 2007

by Yvonne Tan

Petaling Jaya

Palm oil futures closed at a near four-month high yesterday, fuelled by prospects of rising demand and a supply shortage.

Palm oil for December delivery gained RM69, or 2.7%, to RM2,675, palm oil for October added RM64 to RM2,685 per tonne, November was up RM39 at RM2,680 while delivery for January 2008 climbed RM70 to RM2,670.

Yesterday’s prices were also boosted by strong soyoil prices on the Chicago Board of Trade.

The demand for palm oil to make biofuel looks set to increase as crude oil trades near record prices.

Although crude oil for November delivery fell as much as 61 US cents, or 0.8%, to US$81.01 a barrel on the New York Mercantile Exchange as at press time yesterday, it is not far off from the commodity’s record high registered last week.

On Sept 20, crude oil reached a fresh high of US$83.90 a barrel. Oil prices are expected to become firmer ahead of the upcoming winter.

An analyst with a local brokerage said palm oil prices could continue to go up, given the improving prospects for biofuel.

“The price may reach RM3,000 a tonne in the year to Sept 30, 2008,” Bloomberg quoted Dorab Mistry, a director at London-based Godrej International Ltd as saying on Sept 23.

According to Godrej, palm oil futures in Malaysia may gain as much as 15% over the next year on increasing demand.

Palm oil on the Malaysian Derivatives Exchange, which trades the global benchmark, hit a record RM2,764 on June 6. The price has gone up some 72% in the past year, thanks to increasing demand from China and India, two of the world’s biggest vegetable oil buyers.

Soybean oil, palm oil’s main competitor, hit a 23-year high on Sept 18.

OSK plantation analyst Alvin Tai said reaching RM3,000 “was not an issue”. “ We came close to this a couple of months back. It is possible, given that crude oil is trading near its record,” he said.

Even so, some traders are not as bullish, saying that prices may fall to as low as RM2,250 by January as output expands.

Credit Suisse holds a longer term view on palm oil prices, saying that it expected prices to “remain strong” over the next two year, thanks mainly to rising crude oil prices, new biodiesel capacity creating marginal demand for vegetable oils and rising demand for edible oil from China and India, among others.

It has forecast an average palm oil price of RM2,200 per tonne this year and RM2,500 for the 2008 and 2009.

The outfit is overweight on the sector as a whole, with Kuala Lumpur Kepong Bhd (KLK) and IOI Corp Bhd among its top picks.

Meanwhile, in line with the price uptrend yesterday, most plantation counters ended higher. KLK was up 20 sen to RM13.10, Asiatic Development Bhd added 40 sen to a one-month high of RM6.35 while IJM Plantations Bhd gained 14 sen to RM2.34.

This entry was posted on Tuesday, September 25th, 2007 at 10:49 am and is filed under Crude Palm Oil Futures. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.