Palm Oil Futures May Rebound on China, India Demand (Update1)

(KPB PTPN) : Palm oil futures may rise as much as 19 percent in the next 12 months, as India and China buy more cooking oil and record petroleum prices boost demand in Europe for substitute fuels, analysts including Christine Salim said.

``I see palm oil rising to $425 a ton,'' said Salim, head of research at PT Samuel Asset Management, who counts oil palm plantation companies such as PT Astra Agro Lestari among $5.1 million of stocks she helps manage.

Prices of palm oil, the world's second-biggest vegetable oil crop, have fallen 3.4 percent this year in Kuala Lumpur to 1,340 ringgit ($357) a metric ton, compared with a 14 percent gain in soybean oil, the biggest, in Chicago.

More than a third of imports are by China and India, where food companies typically blend edible oils in generic packaging, making it easier to increase the proportion of cheaper products. A recovery in prices would benefit companies such as Astra Agro and IOI Corp. that have plantations in Malaysia and Indonesia, where 85 percent of the world's oil palms grow.

``There's growing demand in both India and China, and other parts of the world for palm oil,'' said Leo Tameeris, Singapore- based regional director for strategy of Noble Grain Asia, a unit of the Hong Kong-based trading company, which gets more than a quarter of its sales from China. He said palm oil prices may exceed $400 a ton in the next year.

Palm oil for October delivery was unchanged at 1,340 ringgit a ton on the Malaysia Derivatives Exchange today. Soybean oil for December delivery fell by 0.04 cent, or 0.2 percent, to 23.69 cents a pound on the Chicago Board of Trade.

Soybean Oil

More than a quarter of world soybean oil production is in the U.S., according to the U.S. Department of Agriculture.

Consumption of palm oil in China and India will rise 5.7 percent in the year ending September 2006, USDA figures show.

In developed countries such as the U.S. and Europe, per capita consumption of vegetable oils was about 50 kilograms last year, while developing countries such as China and India consumed 18 to 19 kilograms, relying on cheaper animal fats, said P.R. Thakore, vice-president of marketing for Pan-Century Edible Oils, a trader in Malaysia.

Global per capita consumption will rise 16 percent in the next 10 years, he said.

In India, producers use soybean oil and palm oil for blending with mustard, peanut or rapeseed oil into edible fats such as vanaspati or ghee. India is among the world's top producers of peanut oil and rapeseed oil.

Alternative Fuel

Prices of some vegetable oils, including rapeseed, have risen because they are being used increasingly as an alternative to diesel fuel which has become more expensive as a result of record world petroleum prices.

Europe plans to replace 2 percent of its fuel with bio- diesel this year, and as much as 5.75 percent by 2010, according to the European parliament web site.

Demand in Europe for rapeseed oil as a fuel substitute has helped push up prices of rapeseed, or canola, by 5.9 percent to $288.60 a ton on the Winnipeg Commodities Exchange this year.

``Demand in Europe for bio-diesel is very strong,'' Samuel Asset's Salim said.

The pineapple-like fruit bunches of the tropical oil palm may increase in importance as a motor fuel additive because the trees yield more oil per hectare than other oilseeds, Thakore said. The palms produce 20 tons of oil per hectare, compared with about 2.3 tons for soybeans, he said.

``Palm oil, as the highest yielding oilseed, should be the natural choice'' as a bio-diesel fuel, he said.

Energy

Demand for palm oil ``will be accelerated by the increasing use of palm oil for energy, especially in Europe, which creates a whole new area of demand,'' Noble's Tameeris said.

Palm oil acids and alcohol are also used in shampoos, soaps and industrial lubricants.

An increase in prices would probably boost the shares of plantation companies, said Jason Chong, who helps manage $600 million in equities at UOB-OSK Asset Management Sdn Bhd.

``Palm oil stocks in Malaysia move very much in tandem with palm oil prices,'' Chong said in Kuala Lumpur. ``The move toward bio-fuel in Europe will augur well for long-term fundamentals.''

Shares of IOI Corp., Malaysia's largest oil-palm plantation group, have risen 17 percent since the year started to 11.1 ringgit. Astra Agro, Indonesia's biggest, has increased 35 percent in the same period to 4,200 rupiah.

Growing incomes in China and India are helping demand for palm oil, which is preferred by makers of products such as instant noodles because it has a longer shelf life than most alternatives.

``We are eating more oils now simply because we are cooking and eating more dishes,'' said Han Jun, rural economy director at the Beijing-based Development Research Center of China's State Council, on July 29. ``Our standard of living has risen. When we go to a restaurant, we have 12 dishes.'' (mes)

Source : http://www.bloomberg.com

Aug. 9, 2005