Palm | Kelapa Sawit

KUALA LUMPUR, Sept 6 (Reuters) - Record southeast Asian palm oil stocks could rein in benchmark Malaysian futures FCPOc3 that gained on the back of U.S. drought crimping soy production and boosting prices of competing soyoil, a leading industry analyst said.


Dorab Mistry, head of vegetable oil trading with Indian conglomerate Godrej Industries GODI.NS, pegged palm oil futures at 2,900-3,300 ringgit ($930-$1,059) per tonne in September and October. Current prices stand at around 3,000 ringgit.

A shorter-than-usual low cycle for palm oil output in No.2 supplier Malaysia and a record stock build in top producer Indonesia due to infrastructure bottlenecks have started to weigh on palm oil prices, the analyst said.

While this might suggest that higher supplies of palm oil could offset the shortfall in soyoil after drought hurt the U.S. soybean crop, demand could start to weaken as the northern hemisphere winter approaches, Mistry said.

Palm oil becomes unusable in colder temperatures as it crystallises.

"It is difficult to be bullish on palm oil prices. These prices are shining on the reflected glory of soyoil," Mistry told an industry conference in Singapore on Thursday.

"Analysts have been talking about the compelling bullish outlook for palm oil as a result of its discount to soyoil. But we are on the threshold of winter and there is only so much substitution that can be done," he added.

Malaysian refined palm olein, used in cooking oil, could widen its discount to crude Argentine soyoil to $300 on weather concerns before narrowing again, Mistry said. The discount now stands at about $250 a tonne.

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Mistry predicted a supply glut was looming in Malaysia, which would cause palm oil prices, which have lost 6.7 percent so far this year, to decline further.

Mistry said the low cycle for yields only lasted for six months as oil palm trees needed a few months to "rest and recharge their batteries" after strong growth last year.

He expected output to hit a record 2 million tonnes each in September and October, leading to historically high stocks in Malaysia.

"I am told that Indonesian production is shaping very well from September onwards and we could have a late peak in November," Mistry said.

Mistry said current stocks of Indonesia are almost at 4 million tonnes, almost double Malaysian levels. This is due in part to "tardy logistics" in the country where it can take two months for fruits to be converted into exportable refined palm oil when the process should take, at most, half that amount of time.

"Normal stocks of palm products in Indonesia in the last two years have been in the order if 3.5 to 4 million tonnes as against the normal conventional guesstimate of 1.5 to 2million tonnes," he said.

"These hidden palm oil stocks in Indonesia are the key reason for the dismal performance of palm oil prices," he added. ($1 =3.1170 ringgit)