FocusPalm oil at new high on food sector demand

08 November 2007 04:21  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)--Crude palm oil (CPO) is hitting new highs and may hold onto gains despite increased output due to high crude values and strong demand from the food sector, regional palm oil traders and biodiesel producers said on Thursday.

CPO futures for January delivery on Bursa Malaysia closed at a record high of ringgit (M$) 3,000/tonne ($898/tonne) on Wednesday.

No let-up is expected in the short term despite increased palm oil production in Indonesia and Malaysia this year amid high agricultural commodity prices for soy, wheat and rapeseed as well as high crude oil values.

Strong demand from the food sector, especially from China and India, and some demand from the biodiesel segment along with surging crude prices have underpinned the rapid upswing in CPO prices, said a regional biodiesel producer.

Soybean oil prices have also been rising and CPO values traditionally track that product, said another regional trader.

Soybean oil prices in the US are at a 33-year high of more than 40 cts/pound and palm oil will remain high as long as this situation continues, he said. Soybean oil December futures on the Chicago Board of Trade closed at 43.64 cts/pound on Wednesday.

High vegetable oil prices - while beneficial for the growers - are spelling a doom for the biodiesel industry across the globe.

Biodiesel producers face not only high feedstock costs but also higher operating and shipping costs due to high crude oil. Biodiesel prices and demand, on the other hand, have not kept pace with these increases.

Workable prices of palm-based biodiesel from Asia were pegged at $850-880/tonne FOB (free on board) by regional buyers and sellers, giving negative returns at current palm prices.

Most of the biodiesel plants across Indonesia and Malaysia are now shut amid poor economics resulting from high vegetable oil prices, producers said. The biodiesel industry in the US and Europe was also operating at very low levels due to high feedstock vegetable oil prices. “The biodiesel industry cannot survive without assistance at such high palm prices,” said another regional biodiesel producer. Political will would now be required in terms of higher subsidies or mandates if biodiesel production was to continue, he added.

Asian countries have limited mandates or concrete plans for using biodiesel. Except for small mandates in places like the Philippines, Australia and Taiwan, there was not a lot of progress in the usage of biodiesel.

Ironically, the major biodiesel producing countries such as Indonesia and Malaysia have not put any mandates to use the product.

By: Anu Agarwal
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