Palm Oil May Test $1,000 a Ton If Crude Rises to $95, Fry Says

By Claire Leow

Sept. 27 (Bloomberg) -- Palm oil may reach $1,000 a metric ton if a global economic recovery pushes crude oil up to $95 a barrel, said James Fry, managing director of LMC International Ltd., which tracks the world’s main oilseeds.

Vegetable oils, which are used as biofuels, usually gain alongside crude. Oil has risen 48 percent this year, averaging $57 a barrel, amid speculation the worst recession since the Great Depression is easing. Palm oil has increased 29 percent.

“Markets are looking well ahead at a recovery that is not yet revealed in the U.S. statistics,” Fry said in an e-mailed presentation prepared for a three-day conference in Mumbai that concludes today.

Governments worldwide including in Europe have ordered the use of ethanol or vegetable oils in gasoline and diesel to boost supplies. Diesel in Brazil, the world’s second-largest soybean grower, will contain 4 percent biofuel from July, Energy Minister Edison Lobao said on May 14.

“Biofuels have created a link between mineral and vegetable oil prices,” Fry said.

Palm oil for December delivery in Malaysia, the second- biggest producer, rose 3.4 percent to 2,186 ringgit ($629) on Sept. 25. Futures peaked at 2,799 ringgit a ton on May 13 amid speculation production is expanding as oil palms recover from tree stress after record 2008 output.

The commodity, the world’s most consumed oil, will climb above $750 a ton in Rotterdam if crude remains at the current level of about $65 a barrel, Fry said. The price may reach $675 if oil drops by $10, he said.

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Speaking in Istanbul in August, Fry, predicted palm oil may top this year’s peak of $800 a ton by December, driven by higher crude oil prices and tight Malaysian inventories.

“Stocks no longer drive palm oil,” Fry said in the latest presentation. “Instead of stocks acting as the main driver of prices, the Brent crude price band is now the major influence.”

Reserves in Malaysia reached a six-month high last month after production climbed to the second-highest level on record and exports declined the first time in four months. Inventories climbed 6.2 percent to 1.42 million tons in August from July, the Malaysian Palm Oil Board said Sept. 10.

Palm oil may average $650 a metric ton this year and next year on threats to production, Citigroup Inc. analysts Penny Yaw and Margaret Go said on Sept. 17. They previously estimated the average price for this year to be $610, and next year $550 a ton.

The commodity has averaged 2,196 ringgit a ton this year