Benchmark palm oil prices may rise to 2,500 ringgit ($597) a tonne by March 2020, according to forecasts by industry analyst Dorab Mistry, as dry weather across Southeast Asia limits output of the edible oil.
"That would take refined, bleached and deodorised palm olein to $600 plus. Palm will narrow its discount to soft oils," said Mr Mistry, according to a copy of his presentation he was giving at a conference in Mumbai on Friday.
Benchmark palm oil prices fell to a six-week low earlier this week on concerns of rising output and weak demand. It was at 2,151 ringgit ($513) a tonne, down 0.8%, at midday break yesterday.
Mistry's forecasts are based on Brent crude oil price assumptions of $60-$80 per barrel, he said.
"A lot will depend on Brent prices and the implementation of B30 in Indonesia," he said, referring to Indonesia's biodiesel mandate that will require 30% bio-content starting in January 2020.
Haze and dry weather in Indonesia and Malaysia, which together produce nearly 90% of the world's palm oil, is forecast to dent output growth from the second half of this year until early next year, said Mr Mistry, whose forecasts are closely followed by the palm oil industry.
He revised down his output outlook for top producer Indonesia in 2019 to 43 million tonnes versus 42 million tonnes in 2018.
Mr Mistry, the director of Indian consumer goods company Godrej International, previously estimated Indonesian production at 45 million tonnes in 2019.
He maintained his outlook for Malaysian production at 20.3 million tonnes this year.
"The story of anaemic production is more prevalent in Indonesia. Fertiliser application had been reduced or skipped due to very low prices in 2018. Dryness in the first half of 2019 and again from late August is a problem," he said.
"Relief from dryness is not expected until late October. This will affect production in 2020 also," Mr Mistry said, estimating that global palm oil output would only rise by 2 million tonnes at most in 2019.
Data from the US Department of Agriculture showed global palm oil output rose by 3.5 million tonnes in the 2018-2019 marketing year, but is only forecast to grow by 1.9 million tonnes in 2019-2020.
The slowing output would limit gains in stockpiles. Malaysian stockpiles rose to a near two-decade high of 3 million tonnes in Malaysia at the end of 2018. Inventories are now forecast to be about 2.5 million to 2.6 million tonnes by December this year, said Mr Mistry, slightly up from 2.25 million tonnes in August.
Mr Mistry also pegged India's edible oil imports for the 2019-20 marketing year beginning on Nov 1 at 16.3 million tonnes, up from an estimated 15.6 million tonnes in the previous year.
Of the total, India is expected to import 9.9 million tonnes of palm oil in 2019/20, slightly up from 9.5 million tonnes in the 2018/19 marketing year.