05.11.2019 (The Star Online) - BALI: Palm oil investors are cheering after a spectacular rally propelled prices into a bull market, and now traders are betting that the rebound has longer to run.
Benchmark futures will likely average RM2,350 (US$564) a tonne this quarter and RM2,400 in the first three months of next year, according to the median estimate in a Bloomberg survey of 11 traders, analysts and plantation executives.
Both quarterly figures are more than 10% above the 2019 average.
After tumbling to a four-year low in July, futures surged last month to enter a bull market and are now about 30% above this year’s bottom.
The turnround in sentiment is in response to optimism over a pick-up in Indonesian demand for palm in biodiesel, slowing production growth, and increased imports by major buyer China, according to respondents in the survey.
“Palm oil had been hovering too low for too long, ” J.Joelianto, trading director of Sinarmas Agribusiness and Food, said in an interview in Bali. “These are not really high prices, but at least plantation houses can smile.”
Still, such a rapid advance also brings concerns.
Palm oil has flipped from a discount to a premium over gasoil, diminishing its allure for use in biofuel. In addition, the 14-day relative strength index on the benchmark futures gauge signals the market is trading at overbought levels.
The rally looks overdone from a fundamental point of view, and prices could pull back in the near term, according to Thomas Mielke, executive director of Oil World.
Survey respondents agreed, with a median estimate for prices to ease to RM2,430 ringgit by the end of December.
Futures surged to close at 2,529 ringgit on Monday, the highest level in 20 months.
The Bursa Malaysia Plantation Index of 43 companies jumped the most in nearly three months.
Prices have surged despite a diplomatic spat between Malaysia and its biggest palm oil buyer India, which spurred an influential processors’ group in Mumbai to call on its members to avoid purchasing the product from Malaysia.
Many market participants that gathered in Bali for an industry conference
last week expect trade tensions to ease in the coming weeks.
“So far there’s no concrete policy decision on not buying from Malaysia, ” said Nagaraj Meda, managing director of Hyderabad-based TransGraph Consulting Pvt. “It’s a sentiment issue, but very important for Indian buyers. Stocks are expected to fall, and so the impact was not seen in prices.”
For now, there appears to be little letup in the bull market. “Sentiment is red hot, ” according to veteran industry analyst Dorab Mistry, who sees prices hitting 2,700 ringgit by March.
“With lower production, biodiesel usage has become the spark to ignite the rally.” — Bloomberg
Read more at https://www.thestar.com.my/business/business-news/2019/11/05/palm-oils-revival-has-further-to-go-as-output-slows#SpClSB0llupiHlrZ.99