(Updates price in first, fifth paragraphs.)
March 4 (Bloomberg) -- Palm oil inventories in Indonesia, the world’s largest producer, may drop 8 percent this year as a significant increase in demand outstrips record supplies, according to Derom Bangun, chairman of the nation’s palm board. Prices rallied, snapping eight days of losses.
Stockpiles of the oil used in food and fuels may contract to 2.3 million metric tons from the 2.5 million tons estimated at the end of 2012, said Bangun, who is scheduled to speak this week at an annual palm conference in Kuala Lumpur arranged by Bursa Malaysia Bhd. Production may reach an all-time high of about 30 million tons, Bangun said in a phone interview from Jakarta, reiterating a forecast made on Feb. 18.
The world’s most-used cooking oil is mired in a bear market as supply and stockpiles have surged to records. Futures on the Bursa Malaysia Derivatives lost 23 percent last year as an economic slowdown in China and the European debt crisis curbed demand. Dorab Mistry, a director at Godrej International Ltd. who’s traded the oil for more than three decades, has said the outlook for 2013 is bearish as global oilseed supplies increase.
“Although there will be an increase in production in both Indonesia and Malaysia, I strongly believe that at the same time there will be a significant increase in demand in India, China, Indonesia and Europe,” said Bangun. “Demand will slightly exceed supply. So I’m bullish.”
Palm futures on Bursa Malaysia Derivatives, a unit of the Bursa Malaysia, gained 1.2 percent to 2,397 ringgit ($771) a ton by the market’s midday break in Kuala Lumpur. Bangun declined to give a price outlook before his March 6 address to the Palm and Lauric Oils Conference & Exhibition.
Stockpiles in Indonesia rose to 3.5 million tons in January from 3.25 million tons the previous month, according to a Bloomberg survey. The January total is the highest figure since the surveys began last year. The country doesn’t release official data on reserves or output. Malaysian inventories were 2.58 million tons in January, near the all-time high of 2.63 million tons in December, according to that country’s palm oil board. Malaysia is the second-largest producer.
Godrej’s Mistry, who’s also set to address the conference, told Bloomberg last month that palm probably will drop this year after producers boosted acreage and global oilseed supplies rose. Chris de Lavigne, global vice president of consulting at Frost & Sullivan, another scheduled speaker, said that inventories will probably remain high as production is outpacing demand.
Global palm stockpiles will climb 7.9 percent to a record 7.203 million tons this season, according to a projection from the U.S. Department of Agriculture. Record global supply of 53.3 million tons will outpace demand of 51.8 million tons, USDA forecasts show. Indonesia and Malaysia account for about 87 percent of worldwide supply, and 89 percent of global shipments.
India, which fulfills less than half of its edible oil needs with domestic crops, will still need to import the balance, with palm making up about 75 percent of total purchases, Bangun said on Feb. 28. India imposed a 2.5 percent duty on imports of unprocessed oils in January.
Cooking oil imports by India, the biggest palm buyer, will probably climb to a record in the year through October, exceeding 9.98 million tons in 2011-2012, Atul Chaturvedi, chief executive officer of Adani Wilmar Ltd., said Feb. 26. Demand will gain 6 percent to 17.5 million tons this year due to rising population and disposable incomes, said B.V. Mehta, executive director of the Solvent Extractors’ Association of India.
Palm demand will be boosted by improving economic conditions in the euro region, as well as a decision by the European Commission to allow use in biofuels of oil that’s been certified by the Roundtable on Sustainable Palm Oil, or RSPO, Bangun said.
The European Commission on Nov. 23 approved the use of RSPO-certified palm for biofuels under the region’s so-called renewable-energy directive requirements, according to the group’s website. The organization comprises growers, processors, traders, consumer-goods manufacturers, retailers, banks and investors, as well as environmental and non-governmental groups involved in setting global standards for the tropical oil.
Indonesia’s push to use more palm in biofuel will increase domestic consumption by 800,000 tons this year, Bangun said. Indonesia’s plan to raise blending in fuel this year may require 2 million tons of palm, Deputy Trade Minister Bayu Krisnamurthi said on Feb. 18.
--Editor: Jake Lloyd-Smith