Olam boss sees short term palm oil squeeze

15.08.2016

Sunny Verghese, chief executive of the Singapore-based ag trader, forecast tighter cocoa and pepper markets, while palm oil is expected to enjoy a short-term pop thanks to depleted stocks in major exporters.

Speaking to analysts following the release of company results, Mr Verghese forecast palm oil prices to remain in its $550 to $640 a tonne range, despite a short term rally.

"In the last couple of weeks we've seen palm prices go up again from $550 to $615," said Mr Verghese.

"Near term we're a little bit friendly to palm prices; and near term I'm meaning very near term, in the next month and two months," said Mr Verghese.

Stock draw down

Mr Verghese noted the fact that palm oil stocks in Chinese ports "have been run down very significantly".

"We estimate port stocks to be about 300,000 tonnes against a monthly consumption of 400,000 tonnes," he said.

And Mr Verghese also estimated a significant drawdown in port stock in India, down to 380,000 tonnes.

"So nearby, both China and India were drawing down on the pipeline stocks," he said.

"So the near term we expect some price pressures."

Easing supply in the long term

But in the long term, supply looks a bit easier, as Olam cut its idea of Malaysian production by 550,000 tonnes, but lifted its ideas of Indonesian output by a similar amount, to 32.6m tonnes.

"In May we said that we expected Malaysian production to be about 18.8 million tonnes. We've

"Long term, based on what we anticipate supply and demand to be, we expect prices to weaken."

Cocoa market squeeze

Mr Verghese forecast a tightening cocoa market, due to a production deficit and particularly short supplies of high quality cocoa.

On demand, Mr Verghese, said "very high cocoa prices has restricted or to some extent impacted the demand for chocolate consumption".

"However cocoa demand is not only arising from chocolate… it is also in various other applications, particularly the cocoa byproducts in terms of cocoa solids".

"The consumption of that is growing quite fast."

"We continue to believe that the cocoa supply and demand fundamentals will lead this year to almost a 320,000 tonne deficit, which is one of the largest deficits we have seen for some time."

Mr Verghese added that "the quality of good quality cocoa… is in very short supply.

"So usable cocoa is actually even in greater deficit."

Pepper market demand rises

Mr Verghese said that pepper markets dynamics were "structurally friendly," due to tightening supply over the medium and long term.

"In the past, India was a big exporter of pepper and a big producer of pepper," said Mr Verghese.

"But India has now turned a net importer because of its growing consumption of pepper and lack of growth in supply."

Although Vietnam is increasing exports, the market is likely to remain tight.

"It is difficult to find good quality land to grow pepper," said Mr Verghese. "And it is also a gestating crop; it requires significant investment."

Olam profits rise

Olam reported a 20.0% rise in its profits over the April to June period, to 114.9m Singapore dollars.

Operational profit, rose 19.2% to 114.8m Singapore dollars.

Revenues rose by 3.5%, at 4,811.6bn Singapore dollars.

Olam shares in Singapore were down 0.3%, at 1.850 Singapore dollars.


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