Palm and Vegetable Oil Demand Softer than Expected in 2012

Demand for palm oil in particular, and for vegetable oils in general has been softer than expected in 2012. Demand was hurt by slower growth in the production of biofuels from vegetable oils and a slowdown in economic growth in the developing countries amid high prices.

Palm oil is poised to tumble to a two-year low as inventories surge in Indonesia and Malaysia, futures in Malaysia, the global benchmark, may slump to between 2,600 ringgit ($852) and 2,700 ringgit a metric ton by December. Forecast from the 2,900 ringgit to 3,300 ringgit made on Sept. 6. The commodity last traded below 2,600 ringgit in September 2010. With the recent sell-off, the probability of prices falling to 2,300 ringgit has risen to 50 percent from 20 percent in June.

Vegetable-oil imports climbed 19 percent to 8.16 million tons between November and August, according to the Solvent Extractors’ Association of India. Stockpiles, including those at ports and in the pipeline, totaled 1.55 million tons as of Sept. 1, it said on Sept. 14.

Futures have fallen 20 percent since the end of March and are heading for a second straight quarterly decline on concern that a pick-up in production will drive stockpiles in Malaysia and Indonesia to records. The December-delivery contract fell 2 percent to 2,763 ringgit a ton on the Malaysia Derivatives Exchange on Sept. 21, the lowest price at close for the most- active contract since October 2010.

Global vegetable-oil supplies will increase by 3.05 million tons in 2012-2013, while demand may expand by 3.5 million tons. Soybeans may reach a record $20 a bushel in December or January and drop with the swelling of harvests in Brazil and Argentina.

Palm oil, used in everything from candy to biofuels, has fallen 8.5 percent this month as demand slowed from importers including China and the European Union, and stockpiles surged because of a seasonal increase in production. Falling prices may reduce revenues for producers including Sime Darby Bhd (SIME) and IOI Corp. and help cap increases in global food costs.

Stockpiles in Malaysia will continue to expand in October, November and December and may reach as high as 3 million tons by January. 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. Production in Indonesia may climb to 27.5 million tons in 2012, higher than the 27 million tons estimated on Sept. 6, while Malaysia’s output may be 18 million tons this year, less than the 18.2 million tons forecast previously.

Prices may drop to 2,500 ringgit a ton by December because of rising stockpiles. There is a large potential for prices to go down substantially. The gap between the two oils, which jumped to a four-year high this month, widened to $304.67 a ton on Sept. 21. The record is $493.76 in August 2008. Soybean oil and palm oil are used in foods and fuels.

Cooking oil imports by India, the largest palm oil buyer, may climb to a record 10 million tons in the oil year ending Oct. 31 on lower domestic oilseed output. Stockpiles in India at the end of October will be higher than in previous years.