CPO - KUALA LUMPUR. Benchmark palm oil prices will not rise above 3,300 ringgit per tonne in the first half of 2020 and the commodity's recent rally has eliminated its competitive edge over rival edible oils, a top industry analyst said on Thursday.
Prices on the Bursa Malaysia exchange have gained 36 percent since October, to hit a three-year high of 3,150 ringgit this week, helped by lower production and higher demand for biodiesel in top producers Indonesia and Malaysia.
"Crude palm oil prices are now near the top of the price band," James Fry, chairman of commodities consultancy LMC International, told an industry conference.
"Without higher crude oil prices, it is difficult to see Bursa Malaysia derivatives going above 3,300 ringgit in the next six months."
The jump in prices will see demand for palm lose ground to sunflower oil and soyoil in important markets, he added.
Palm oil prices have recently pulled back from their peak on market concern over trade tension between India and Malaysia, falling nearly 1% on Thursday to stand at 2,883 ringgit.
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India, the world's largest buyer of edible oils, last week restricted imports of refined palm oil and effectively halted purchases from Malaysia, in retaliation for Prime Minister Mahathir Mohamad's criticism of its Kashmir policy.
Last year, India tightened its grip on the Himalayan region by scrapping its autonomy, shutting down internet access and detaining activists and politicians.
Hindu-majority India was "invading and occupying the country" of Jammu and Kashmir, Mahathir said recently.
Fry said India's curbs would shift demand for crude palm oil demand to Indonesia from Malaysia, which could end up selling more higher value refined palm oil to the rest of the export market.
Indonesia, which is ramping up biodiesel use, will have to cut back exports of refined palm oil and other processed oil in order to sell more crude palm to India, he said.
"In a way, the Indian restriction is a sort of blessing in disguise for Malaysia's downstream industry, as Malaysia would switch to higher value exports," Fry said.
