MALAYSIAN palm oil may still hit RM4,000 a tonne on tight stocks in the immediate term and as competing soyaoil gets increasingly channeled to the biofuel sector, said Prudential Bache Commodities analyst Anne Frick.
A sell-off last week has left palm oil about 12.5 per cent below the key RM4,000 level, as traders grew concerned over high crude oil prices and the spreading Middle East unrest slowing economic growth.
But higher crude oil prices could increase biodiesel demand for soyaoil in the Americas, leaving less for vegetable oil export markets and increasing demand for palm oil as substitute, Frick said.
"There is a short window of opportunity when palm oil prices could respond to tightening stocks," Frick said in an emailed interview ahead of next week's Bursa Malaysia Palm Oil Conference.
"Beyond that, highs might be made under the leadership of soyabean oil rather than palm oil, which has been leader to date in this bull market."
Palm oil prices have been rallying since the last quarter of 2010 as erratic weather disrupt production, tightening stocks at a time of resilient demand.
Frick said Malaysian palm oil stocks may have not seen their low point yet given the average lag of 2.7 months between the lowest month of output and the lowest month in stocks over the past 28 years.
Malaysia's January production hit its lowest in a year. The market appears to be divided on whether there will be a recovery in February despite heavy rains and floods submerging estates in key growing areas.
Frick said palm oil stocks were likely to recover after the summer of 2011, echoing a scenario raised by other industry analysts that improved supply may help palm olein normalise its discount to soyaoil from the current narrow discounts.
Cash refined, bleached and deodorised palm olein from Malaysia sells at US$1,217.50 (US$1 = RM3.04) a tonne for March, a US$37.50 discount to Argentine soyaoil, Reuters calculations show.
Palm olein normally trades at around a deeper US$100 discount to soyaoil.
Both oils compete for use mostly in cooking oil, which is heavily used in the world's top vegetable oil buyers, India and China.
"I expect palm olein to trade slightly under soyabean oil but not to a normal discount until the summer when palm oil stocks begin to recover and/or crop scare rallies in soyabean boost soyabean oil prices," Frick said.
She said soyabean oil prices could also get a fillip from biodiesel mandates - requiring refiners to blend a certain percentage of biodiesel into their diesel mix - in Brazil and Argentina, the world's No.2 and No.3 soyabean producers after the US.
"Biodiesel mandates are likely to be a key factor in Brazil where it could reduce soyabean oil exports," she said.
"Mandates in Argentina don't have the same volume effect because its population is only one fifth of Brazil's, but if the differential export tax continues, that could keep biodiesel production strong in Argentina."