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335782

UPDATE 3-China lockdowns overshadow palm oil outlook despite output slowdown

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China a disappointment for sellers -James Fry

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Malaysia benchmark seen at 4,500-3,500 rgt/T to March-Mistry

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Palm oil output yield downtrend "alarming" -Mielke

(Adds comments on Indonesia's B40 plan)

By Bernadette Christina

NUSA DUA, Indonesia, Nov 4 (Reuters) - The global outlook for palm oil remains uncertain, with strict pandemic policies in major importer China weighing on demand, while high energy prices and a slowdown in output provide support, leading industry analysts said on Friday.

Malaysian benchmark futures earlier this year had surged to record levels of more than 7,200 ringgit ($1,517.07)per tonne due to top producer Indonesia's export restrictions, which culminated in a three-week export ban late in April.

Prices have since come down amid concern over a global economic slowdown and as China maintains a strict COVID-19 containment policy that has caused mounting economic damage.

"China has been a real disappointment for sellers of vegetable oils because the market happens to be under the lockdown all the time," James Fry, chairman of commodities consultancy LMC International, told participants at the Indonesia Palm Oil Conference in Bali.

"I can't see this changing very quickly," he said, contrasting it with the bright spot of top vegetable oil importer India, which has seen purchases rise up to September.

Palm oil prices on a free-on-board basis at Indonesia's Sumatra ports could ease to $920 per tonne from $940, Fry said.

Malaysia's benchmark price was expected to trade between 3,500 to 4,500 ringgit ($737.46 to $948.17) per tonne in the period from now until the end of March next year, said Dorab Mistry, director of Indian consumer goods company Godrej International.

The contract closed at 4,365 ringgit on Friday.

Mistry no longer expects palm futures to fall to 2,500 ringgit per tonne, an estimate he made in September, unless Brent crude prices drop to $70 per barrel. Brent crude is currently trading above $94 a barrel.

BIODIESEL PLANS

Meanwhile, Thomas Mielke, head of Hamburg-based analyst firm Oil World, told the conference that global palm oil output is seen rising by 2.9 million tonnes in the 2022/23 season, but noted that output yield has been on a downtrend in recent years, which he said was "alarming".

"This is for the first time, palm oil is at the edge of marginal growth," Mielke said, adding output may not be enough considering various bio-energy agendas globally.

All analysts were monitoring Indonesia's plan to increase its biodiesel mandate to B40, which contain 40% palm oil, from 30% currently.

Fry said if Indonesia implemented its B40 biodiesel mandate in January, Sumatra's FOB prices could reach $1,080 per tonne in June. Mielke warned that if the policy is not considered carefully, it could cause prices volatility down the line.

Indonesian officials on Thursday said high crude oil price were making it more feasible to use a higher mix of palm oil in fuel.

Fadhil Hasan, an executive with Indonesia's Palm Oil Association, said the government should not increase the blending this year, or next, to avoid pushing prices higher.

"It is going to impact domestic market prices of CPO, in turn going to cause cooking oil prices to increase," he told reporters. (Reporting by Bernadette Christina Writing by Fransiska Nangoy Editing by Ed Davies, Martin Petty)

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