CPO prices to remain stable for 3 months

Mumbai, July 26 | Updated: Jul 27 2006, 05:30am hrs
The price of crude palm oil (CPO) would remain steady at around RM (Malaysian ringgits) 1,600 in the next three months.

In a price outlook session organised by the Bombay Commodities Exchange on Tuesday, the prices for CPO were forecast to be steady. However, with a lot of oil going into producing bio-fuel, the prices may rise once the plants are set up.

In Malaysia, the October futures price was quoted at RM 1,555 on Wednesday. Malaysia and Indonesia will set aside 6 million tonne each of palm oil for bio-fuel extraction. However, crude oil and palm oil parity stands at $50 (excluding incentives) and according to a report by a petroleum company, the price of crude oil could be around $40 in the next few years.

It would be interesting to see how these bio-fuel plants fares, the panelist said citing the report.

With palm oil increasing to RM 1,600 more acreage will be induced, which might ease out the pressure on the prices, a panelist said.

Different oilseeds like corn, palm, rapeseed are used to produce bio-fuel which are more environment-friendly, renewable and also cheaper. These become important source of energy in the times of high crude prices.

A positive correlation of 0.8 between the prices of crude oil and crude palm oil has been observed, G Thiagarajan of Commtrendz, a commodities consultancy firm, said. As a result, a rise in crude oil prices may lend an increase to palm oil, he explained.

Speaking on the occasion Suresh Kotak, a veteran in the field of commodities, expressed his concern over futures contract specifications. The contract design should be such that speculators cannot take undue advantage of futures trading, also the government intervention should facilitate futures trading and not disrupt them, he said.

India has seen a decrease in palm oil consumption over the years whereas soyoil consumption has increased. Palm oil production worldwide would be lower this year; however, the already existing large inventories will take care of any increase in prices, another panelist added.

Increases in freight costs because of high oil prices are also making the imports of edible oil costlier. Malaysia and Indonesia are the largest producers and exporters of CPO.

Castor seed prices might increase in view of the decrease in land under cultivation from 5.25 million hectares to 4.5 million hectares this year, mainly due to non-appreciation of prices vis--vis other options, Alok Mitra, general manager (exports), HLL, said. Castor seed for immediate delivery traded at Rs 310.9, the August delivery contract traded at Rs 319.5. Also groundnut oil may rise by Rs 10-15 per 10 kg in the next month, and an increase of Rs 5-10 was a similar increase, which was agreed upon for soyoil by the panelists in the discussion. On the NCDEX, ghroundnut oil for August to be delivered at Rajkot traded at Rs 471 on Wednesday.