Palm oil prices volatile despite high output

The price of the world’s most-used cooking oil, palm oil, is expected to remain volatile, given the high stock levels in Malaysia and Indonesia, a top official of a leading Malaysian oil palm cultivating company stated.

“Industry analysts expect palm oil prices to average around Malaysian Ringgit (MYR) 2,300 (Rs. 97,700) - MYR 2,500 (Rs. 106,200) over the coming years, subject to seasonal movements outside this range,” Good Hope PLC Chairman, Hari Selvanathan said.

He further stated that import duty regimes of key consuming markets such as India and China structured towards protecting domestic oil seed production, as well as demand from key consuming markets due to effects of the prolonged economic crises, would also have a bearing on the volatile prices.

Palm oil prices declined in the past year as reserves in Malaysia reached record level. Stockpiles in the country, the second-largest producer behind Indonesia, have since shrunk, touching a seven-month low of 2.17 million metric tons in March, according to the Malaysian Palm Oil Board.

Prices will gain about 25 percent to MYR 2,810 (Rs. 119,015) a metric ton between now and 2015, according to analysts’ forecasts compiled by Bloomberg. A review of industry operations and performance in Good Hope’s annual report 2012/13 revealed that many short-term measures were taken by the industry aimed at stabilizing crude palm oil (CPO) prices including the reduction of export tax rates (to boost export of CPO) by the Malaysian government.

However the increasing production of CPO both in Indonesia and Malaysia continued to be a critical factor, raising stock levels and thereby impacting CPO prices.

The report further stated that palm oil consumption is expected to increase in the coming year and will match the incremental CPO supply.

“Palm oil prices will also mirror the movements of crude petroleum prices, whereby an increase in petroleum prices could boost palm oil consumption for energy purposes and for bio-diesel usage,” it said.

Good Hope is a company with a land bank of 157,889 hectares in Indonesia and Malaysia, of which 64,214 hectares are developed. From its roots in oil palm plantations, the company is moving along the value chain to become an integrated player in the edible oils and fats market.

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