Lower palm oil prices to spur biodiesel growth

 

Industry analysts say there are not many factors, other than emerging biofuel demand, to sharply lift palm oil prices in the next six months

SINGAPORE: The tide is turning in favour of palm-based biodiesel producers, who aim to boost output in coming months because of improving margins after a near-50 per cent drop in palm oil prices from their record high six months ago.

Industry analysts attending a three-day conference said this would prevent crude palm oil prices from falling much below RM2,300 a tonne on the Bursa Malaysia Derivatives Exchange, from the current level of about RM2,376.

"Biofuels have become attractive again, that is one thing which will support prices. CPO is now cheap," James Fry, chairman of LMC International, said on the sidelines of the conference.

Palm oil hit a record high of RM4,486 a tonne in March and crude oil hit a record over US$147 (RM507.15) a barrel in mid-July, prompting small biodiesel producers to halt operations in the past few months and the biggest producers to cut production sharply.

But margins for the region's biofuel producers have turned positive again, with crude oil easing to about US$105 (RM362.25) and palm oil easing at a relatively faster rate to around US$700 (RM2,415), increasing the spread between crude oil and palm oil in recent weeks.

"Biofuels can generate some instant demand which can mop up the surplus," Dorab Mistry, a leading industry analyst and director of Godrej International, said.

A poll showed last week that Malaysia's August palm oil stocks are expected to edge up 1.2 per cent from a month ago as production could hit its highest level so far this year and outstrip export growth.

Fry said buoyant emerging demand for biofuels would likely li-mit further downside of palm oil.

"Palm oil prices will find support around RM2,300 because of the biofuels demand, unless crude oil falls faster than I think."

Industry analysts said there were also not many factors, other than emerging biofuel demand, to sharply lift palm oil prices in the next six months as bumper Chinese oilseeds production at home and expectations of a good soyabean crop in India would keep market sentiment subdued.

"Palm oil prices are likely to hover around US$700 per tonne until February next year as the demand for biofuels will support prices," Fry said. - Reuters