Palm oil will average about US$700 if crude oil prices decline

Palm oil will average about US$700 a metric ton over the northern hemisphere winter as crude oil prices decline, according to LMC International Ltd.'s James Fry on 9/9.

Crude oil may trade between US$80 and US$85 a barrel over the winter months, Fry, managing director at the commodity and biofuel research company, told reporters at a conference in Singapore.

Palm and soybean oils, mostly used in food, often follow crude oil as they can be used as biofuels. Crude has tumbled 27% from its Jul 11 record, while the price of palm oil has almost halved from a Mar peak. Palm oil tends to cloud in cold weather, reducing its appeal for use in cooking and fuels.

"Crude oil should fall another $20 from here and that will keep palm oil depressed," Fry said.

"Palm oil has trouble making more sales because of its cold-weather properties."

"We've downgraded our price assumption per ton from US$1,050 to US$900 in '09, and from US$1,100 to US$900 in '10,'' said Merlissa Paramitha Trisno, an analyst at PT Mandiri Sekuritas in Jakarta. "We see a risk of lower crude palm oil prices if the oil falls to belowUS $100 a barrel.''
Palm oil has tumbled 48% from a record 4,486 ringgit a ton in Mar. Soybean oil, palm oil's main rival, has fallen 34% from its peak of 72.69 US cents a pound.

Soybean oil is 56% more expensive than palm oil today, more than double the 12-month average of 23%, according to data on the Bloomberg.

Fry wrongly predicted Sep 23 '07, that prices may touch 2,250 ringgit a ton by Jan of this year as production rose. It averaged 3,226 ringgit in Jan and reached a record 4,486 ringgit in Mar.

On Apr 10, he said palm's gain of 57% in 12 months had been "reasonable" as it was tracking crude prices higher. On Mar 13, Fry predicted the price may average 2,060 ringgit a ton for the full year.