Palm Oil Prices Futures Slump per mt

Palm oil prices futures may slump to as low as 2,700 ringgit ($848) a metric ton from 2,968 ringgit in the absence of fresh stimulus by the U.S. to revive growth, said Mistry, abandoning his forecast for prices to reach 4,000 ringgit. The most-active contract last traded below 2,700 ringgit in October 2010. Futures may rebound to 3,300 ringgit as the decline may stimulate demand, he said at a conference in Mumbai yesterday.

Palm oil prices have slumped 18 percent since climbing to a 13-month high in April as growth slowed in China, the biggest cooking-oil user, and the debt crisis worsened in Europe. A decline in prices may cut costs for companies such as Nestle SA (NESN), the world’s largest food company, while reducing profits at producers including Sime Darby Bhd (SIME) and Wilmar International Ltd. (WIL)

“The scenario on commodities has darkened considerably in the world at large,” said Mistry, who’s traded palm oil for more than three decades. “The main catalyst as far as palm oil prices are concerned has been the fall in crude oil prices. The logic has been that biodiesel demand is the swing factor and as crude oil falls, biodiesel becomes uncompetitive.”

Biodiesel demand this year may see “very little growth” as the drop in oil prices reduces consumption for non-mandatory use, he said. Palm oil’s use in biofuels may expand by only 1 million tons this year, while its demand for food will expand by 2 million tons, he said. Brent crude oil prices have declined 8.1 percent this year, weakening demand for the tropical oil.

A further decline in crude prices in the absence of stimulus measures from the U.S. “will see the opening up of the gates for prices to fall further,” said Nagaraj Meda, managing director of TransGraph Consulting Pvt., who has forecast prices for 13 years.

Federal Reserve Chairman Ben S. Bernanke said yesterday the Fed will need to assess conditions before deciding if more measures are required to stoke an economy threatened by Europe’s debt crisis and budget cuts.

Palm oil for delivery in August fell as much as 1.8 percent to 2,922 ringgit before ending the morning session at 2,968 ringgit on the Malaysia Derivatives Exchange.

“On the whole, demand growth has been disappointing,” said Mistry. “The Chinese consumer of vegetable oils has tightened his belt and we have not seen the strong year-on-year rise in consumption as in the past.”