KARACHI: Malaysian palm oil prices are expected to trade at RM2,500-RM2,700 (US$635-US$686) per tonne due to falling production from March onwards, and as stock levels decline from now until July, said leading vegetable oils analyst Dorab Mistry on Saturday.
That would be a recovery for benchmark palm oil prices that have slumped more than 10% since early November on rising Malaysian stockpiles. Inventory levels in Malaysia rose to their highest in more than two years last month, hitting 2.7 million tonnes.
"Palm looks oversold and demand is at record levels," Mistry said at an edible oils conference in Karachi, Pakistan, according to an early copy of his presentation. between now and August will also provide price support, he said.
"We must expect measures from the Malaysian government to assist small growers and to support prices."
Palm oil prices in Malaysia fell 1.3% on Friday to close at RM2,445 a tonne.
"Stocks have peaked and will gradually decline from now until July 2018," said Mistry, adding that his price outlook is based on an assumption of Brent crude oil prices at US$60-US$75 a barrel.
Palm oil is currently at peak production, and that will run through March 2018, Mistry said.
Palm oil production typically rises during the fourth quarter of each year before declining through the middle of the following year. Analysts, however, expect to see slower seasonal tapering this year, as output trends have been affected by the dry weather El Nino event of 2015.
Mistry, who is also the director of Indian consumer goods company Godrej International, pegged Malaysia's 2018 palm oil output at 21 million tonnes, while Indonesia's was forecast at 38 million tonnes.
The two countries are the world's top producers and account for nearly 90% of global palm oil.
The Malaysian Palm Oil Board reported an output of 19.9 million tonnes in 2017, while the Indonesia Palm Oil Association estimated its production last year at 36.5 million tonnes.
"Overall in oil year 2017-2018 (ending September 2018), palm production will be up at least 4.5 million tonnes (globally)," said Mistry.
Based on rainfall patterns and weather forecasts, production is expected to surge from September 2018, he said.
Crude palm oil prices would rise to US$750 per tonne CIF Rotterdam by mid-year, Mistry also said.
Refined, bleached and deodorized palm olein prices would touch US$720 a tonne on a free-on-board basis, he said.