2009 palm oil prices may plummet

Global - Palm oil prices could fall by a whopping 46% next year due to oversupply, predicts one research company.

CLSA Asia-Pacific Markets said it slashed its forecast for palm oil prices by 46% in 2009 and 32% in 2010, to trade at 1,000 ringgit (US$278) per tonne and 1,250 ringgit per tonne, from current levels of about 1,455 ringgit (US$405) per tonne.

Prices of palm oil began descending from a March high of 4,486 ringgit per tonne, after being negatively hit by the financial crisis. Falling prices of crude oil, which reduces demand for palm oil to supply the biodiesel industry, also contributed to the slumping prices.

The falling demand for palm oil was aggravated with a surge in supply and slowdown in exports to China and the Netherlands, resulting in Malaysia's palm oil inventory in October hitting a record 2.1 million tonnes, a 14% increase from the previous year.

Not all market watchers are convinced, however. Fitch Ratings' Buddhika Piyasena was quoted in media reports as saying that prices had bottomed out at its current levels and that the risk of further declines was limited.

This is backed by the Malaysia government's initiatives to push up prices, including plans to fell some 200,000 ha of old palm oil trees and mandating the use of biofuel in all government vehicles in the next few months.

Piyasena believes that if both the Indonesia and Malaysia governments implement the use of biofuel, it could use up to 1 million tonnes of palm oil.