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Malaysia's minister estimates palm oil price to fall in 2018

Higher output, rising stockpile to weigh on prices

KUALA LUMPUR (Nikkei Markets) -- Price of crude palm oil is expected to range between 2,600 ringgit ($620.6) a ton and 2,700 ringgit per ton in 2018, edging lower from this year's levels amid rising output, Malaysia's plantation minister said Tuesday.

Next year, production of the widely-used commodity is expected to exceed this year's estimated 19.5 million tons, Plantation Industries and Commodities Minister Mah Siew Keong said at a conference. The benchmark palm oil futures fell 0.8% to 2,739 ringgit a ton on Tuesday.

"I think the price will maintain" between 2,600 ringgit and 2,700 ringgit per ton, said Mah. This year's production will be higher than that of 2016's as the lingering effects of El-Nino weather conditions eased, he said.

Palm oil stockpile in Malaysia has risen for the fourth straight month in October as surging production outpaced sales, fanning worries over price of the widely used edible oil at a time when demand is expected to stay muted.

Inventory expanded 8.4% month-on-month in October to 2.19 million tons, the highest level since January 2016, according to the latest data from the Malaysian Palm Oil Board. In 2016, palm oil output had declined 13% as searing heatwave from the El Nino weather condition shrivelled trees and hurt yields.

The swelling stockpile is likely to pressure prices of crude palm oil next year, said Public Investment Bank's analyst Chong Hoe Leong, who tips CPO to trade at 2,500 ringgit levels.

"Next year, inventories could hit another record," Chong said. "I estimate stockpiles will likely trend above 2 million tons due to recovery in production levels from a low base."

Meanwhile, Malaysia, the world's second-largest producer of palm oil after neighbor Indonesia, is still in talks with the European Union to break a deadlock over a proposed ban on using palm oil in biofuel, Mah said.

"This (the proposed ban) is a clear discrimination against palm oil," Mah said. Prime Minister Najib Razak will meet Indonesian President Jokowi Widodo to discuss ways to safeguard the industry following EU's proposal, he said.

The European Union, the second-largest market for Malaysian palm oil after India, decided in October to phase out palm oil-based fuels by 2021 and vegetable oil-based biodiesel by 2030 as part of its changes to its renewable energy policy.

"I will be meeting 16 EU (nations') ambassadors by end of this month to discuss the proposed biofuel oil ban," Mah said. "I am confident that the proposed resolution will not be implemented."

A ban on palm oil biofuels in Europe "will be bad for demand," said David Ng, an analyst at Phillip Futures in Kuala Lumpur. "A rough estimate shows demand for at least 1 million tons of palm oil could be taken off the market if that happens."

--Gho Chee Yuan and Alexander Winifred

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