KUALA LUMPUR, Aug 25: Malaysian crude palm oil futures could slide as far as 2,200 ringgit per ton before triggering fresh demand, as ideal weather extends the main growing season, a leading industry analyst said on Monday.

But Dorab Mistry cautioned that the forecast only applied if struggling oil prices stabilise around $100 a barrel.

Benchmark palm oil on the Bursa Malaysia Derivatives Exchange has slumped more than 40 per cent since a record high in March to 2,610 ringgit on Monday, leading buyers in China and India to default on cargoes.

We have at present a deadly cocktail of rising production combined with some demand rationing. In such circumstances, prices have to go to the level where they create strong demand growth, Mistry told an industry conference.

An increasing use of vegetable oils as a feedstock for biodiesel means palm oil often moves in tandem with crude oil which has fallen by a fifth since a record high in July.

Supply is also rising, with the high output cycle in top producers Malaysia and Indonesia likely to stretch to October and November due to ideal weather conditions and liberal use of fertiliser, Mistry said.

The Indonesian Palm Oil Producers Association is forecasting 18.6 million tons this year.

Although high output has depressed palm oil prices in the last few months, Mistry said it was the sell-off in Chinese vegetable oil markets due to better rapeseed and soyabean crops that sparked the downward spiral in palm oil.

China’s rapeseed crop in 2008 rose about 3 million tons to an estimated 11 million tons, data has shown.

This explains why the domestic market in China is over-supplied and suffering from indigestion, said Mistry, who handles vegetable oil buying and trading for Godre.

My estimate is that on an annualised basis, for the oil year 2007-08, we have already lost 1 million tons of food demand and about 500,000 tons of biodiesel demand as a result of high prices.—Reuters