* Prices seen trading between 2,100-2,300 rgt over next few weeks
* Palm to rise to 2,500 ringgit per tonne by March 2015
* Indonesia, Malaysia output forecast lowered
* Palm stocks to peak in October and ease in early 2015
By Anuradha Raghu
KUALA LUMPUR, Oct 29 (Reuters) - Palm oil prices may have bottomed out and will likely trade between 2,100-2,300 ringgit per tonne ($641-$703) in the next few weeks before rising to 2,500 ringgit by March, as output weakens and stocks ease, leading analyst Dorab Mistry said.
Benchmark palm oil prices had plunged almost 28 percent over the first eight months this year as Malaysia’s stocks of the tropical oil surged to a more than one-year top above 2 million tonnes, but a recovery in futures has set in since September amid signs of weaker output.
“Palm oil production is not performing to expectation and that is taking out some of the froth from production estimates, including my own,” said Mistry, who had previously expected palm prices to hit a 5-1/2-year low of 1,900 ringgit on sluggish demand and higher output.
There are signs that palm oil output may have peaked in August this year, earlier than usual, while the delayed effects of dry weather indicate supply in top growers Indonesia and Malaysia may fall short of projections, Mistry said at a palm oil seminar in Kuala Lumpur.
Malaysian output is expected to rise to 19.6 million-19.8 million tonnes this year, short of an earlier 20 million tonne target, while top grower Indonesia “may at best reach 30 million tonnes” versus 30.5 million tonnes projected earlier, he said.
The ongoing dry spell in Indonesia’s Kalimantan region, which has stretched into its fifth month, may also hinder palm yields next year, he added.
Mistry expects palm oil stocks to peak at end-October before gradually drawing down through the first half of 2015.
Malaysian palm stocks at end-September stood at an 18-month high of 2.09 million tonnes, according to Malaysian Palm Oil Board data.
“After Dec. 10, I expect Bursa Malaysia Derivatives crude palm oil futures to rise steadily as production declines begin to bite and stocks decline,” Mistry said at the seminar.
“However, given the current macro economic outlook, I do not expect a bull market.”
He added that prices of competing soybeans, soyoil and soymeal may have also bottomed out, and forecast prices of free-on-board (FOB) Argentina soyoil to trade between $750-$800 for December-January delivery.
Argentina soyoil FOB prices <0#AMSOYOIL-AR> are currently around $756 for November-December delivery.
The benchmark January palm oil contract on the Bursa Malaysia Derivatives Exchange is trading at around 2,256 ringgit per tonne, up almost 18 percent from early September.
Palm oil prices may also draw support from rising demand in India and China, the world’s top two buyers of edible oil.
India’s need for palm, soy and sun oils is set to spike in the year to September 2015 due to the smaller production of domestic soyoil, said Mistry, who heads the vegetable oil trading arm at India’s Godrej Industries.
He sees India’s 2014/15 monthly imports of vegetable oils averaging at least 100,000 tonnes more than a year ago.
Imports of soybeans and other vegetable oils by China are also expected to climb, Mistry said, adding that these factors will boost global food demand by 3.5 million to 4.0 million tonnes between October 2014 to September 2015.
Mistry sees global oilseed supplies rising by 3.95 million tonnes over the period, while growth in global demand for edible oils is seen at 4.5 million tonnes.
Palm oil demand could also get a boost from Malaysia’s move to increase the minimum amount of the tropical oil required in biodiesel to 7 percent from November, from 5 percent now.
The “B7” biodiesel mandate is expected to boost the domestic use of palm biodiesel to 575,000 tonnes a year, which traders say could be friendly for planters as it would attract buying interest from biodiesel producers.
However, a recent rout in crude oil prices could cap biodiesel demand for palm oil by making it a less attractive option for feedstock, Mistry said.
The analyst reiterated his call to buy stocks of palm oil plantation and processing companies.
“In fact with my forecast of improved prices for 2015, the timing could not be better.”
$1 = 3.2725 Malaysian ringgit Editing by Himani Sarkar