 Palm oil, increasingly used for biodiesel an environmentally friendlier alternative to petroleum fuels, has risen in light of crude oil prices potentially remaining at $100 per barrel.
Crude palm oil (CPO) contracts for March on the Malaysian Derivatives Exchange jumped 2.5% to a lifetime high of $956 a tonne on 3rd January 2008. The price rallied 125% since mid-2006 and rose 12% in less than a month.
Analysts expect the trend to continue into the second quarter of 2008. "It will go up, look at what is happening to crude oil and soybean oil," said a trader with a domestic broker. "We are in the middle of a strong bull run."
The relationship between palm and crude oil prices illustrates increased interest in alternative fuels. Palm oil is used as cooking oil, in food items and to make oleochemicals in soap and cosmetics. Mixed with traditional diesel or combined with alcohol and processed into biodiesel, the oil is garnering growing interest as it is the highest yielding oil crop and has favourable characteristics that make it the ideal feedstock for green fuels.
While only 10% of palm oil is presently used for biodiesel, the percentage is expected to change as the world looks to cleaner burning alternative fuels.
Analysts say palm oil prices can still find support in the fundamentals of the vegetable oil market and the correlation between palm and crude oil is not that high.
Dorab Mistry, a director of Godrej International said palm oil is relatively cheap compared with other vegetable oils and demand in high-population countries such as China and India continues to be strong.
Chris de Lavigne, an analyst with research firm Frost & Sullivan, believes crude palm oil will climb to RM3,334 per tonne in the next three months before correcting slightly in the second quarter.
“The overall demand for vegetable oils is outstripping supply,” Lavigne insists.
Crude palm oil prices rose 53% last year and further increases is said to have been prevented by fresh Indonesian supply.
“The new Indonesian supply is rescuing the market from going even higher,” Mr. Mistry says.
Intertek Testing Services reported that exports of Malaysian palm oil products rose 10.8% to 1,428,772 tonnes in December while Societe Generale de Surveillance, another surveyor pegged the increase at 13.9% to 1,443,850 tonnes instead. THE END. |
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