Mistry restates RM4,000 palm oil forecast

Palm oil may gain 15 per cent by the end of June, according to Godrej International Ltd's Dorab Mistry, restating a year-long call for a rally to RM4,000 (US$1,302) a metric ton after prices dipped.

"I am very happy to reiterate my forecast," Mistry said in an e-mailed response to questions. The Godrej director, who's correctly forecast price trends over the past year, has been predicting a rally to that level since at least March 2011.

Wilmar International Ltd, the world's biggest palm-oil processing company, is Mistry's favorite palm stock, he said.

While prices in Malaysia have climbed 9.5 per cent this year, in line with Mistry's outlook, they've fallen 4.2 per cent since April 10 amid concern the global recovery may be at risk as economic growth in China slows and the European debt crisis worsens. Shares in Wilmar International, which have dropped over the past 12 months, are "good value," he said.

"My price forecasting is based on fundamentals of supply and demand and these have not changed," he wrote. "In fact, CPO production is underperforming more than my model had suggested," referring to crude palm oil by its initials.

Palm oil for July delivery ended little changed at RM3,477 on the Malaysia Derivatives Exchange yesterday, the lowest close for the most-active contract since March 30. That's down from a 13-month high of RM3,628 on April 10.

"Currently, the macro picture is undergoing a reassessment and that has led some players to de-risk," said Mistry, who's traded palm oil for more than three decades. "This sentiment changes from time to time, and as time goes by, each such change lasts for a shorter duration. Time will tell."

Last year, Mistry predicted that the price of the world's most-consumed cooking oil, which is used to make instant noodles and candy, would bottom out at about RM2,800 before rebounding. Its lowest price was RM2,754 on Oct. 6. Chandran Sinnasamy, trading head at Kuala-Lumpur based LT International Futures (M) Sdn, said last month that his views are respected by the industry.

China, the biggest user of cooking oils, reported lower- than-expected gross domestic product growth in the first quarter, raising concern that commodity demand may slow. Europe's resurgent debt crisis has also roiled equity and commodity markets as government bond yields climbed.

Production of palm oil in Malaysia and Indonesia in January and February fell slightly short of forecasts, Mistry said in a speech in Beijing on March 27. The two countries are the world's largest producers.

March, Malaysian production was 1.21 million tons, according to the nation's palm oil board. That's 14 per cent lower than a year ago and 2.1 per cent more than February. Malaysia had a so-called high cycle of production in 2011, resulting in record output of 18.9 million tons. A so-called low cycle that began in January meant output would range between 18.6 million and 19 million tons in 2012, Mistry said March 7.

The ratio of global stockpiles to demand for nine edible oils, including soy and palm, may drop this year to the lowest level since 1977 as drought hurt soybean crops in South America, according to data from the U.S. Department of Agriculture.

"At current prices, Wilmar looks very good value," said Mistry. "They have by far the most balanced and diversified palm portfolio split between upstream, processing and FMCG," he said, referring to fast-moving consumer goods. While Singapore- listed Wilmar is one of Godrej's suppliers, he doesn't own the company's stock, Mistry said.

Wilmar shares ended at S$4.89 yesterday, valuing the company at S$31.3 billion (US$25 billion). They've dropped 7.2 per cent over the past year, and 2.2 per cent in 2012. Of the 30 analysts' calls tracked by Bloomberg, there are 11 "buy" recommendations and 14 "holds" on Wilmar stock. -- Bloomberg