Palm oil prices may rise 21% on stronger demand NUSA DUA, Indonesia: Malaysian palm oil prices may rise up to 21% by the first quarter of 2010 from their current levels on strong demand and as hotter weather hits yields, a top industry analyst said yesterday. Dorab Mistry, head of vegetable oils trading at Godrej International, raised his forecast for the first three months to RM2,800-RM3,000 a tonne from an earlier estimate of RM2,400."I expect palm oil prices to rise at the fastest pace in relation to all other vegetable oils," Mistry told the Indonesian Palm Oil Conference and Price Outlook 2010 meeting in Bali. Palm oil's gains would narrow its spread to Argentine soya oil as the South American vegetable oil would rise at a slower pace, London-based Mistry said. He did not give a timeframe.

 The El Nino weather pattern, which can cause drought conditions in the Asia-Pacific region, may hit Malaysian palm production hard and limit the output. "It is conceivable that 2010 (Malaysian) crude palm oil production will turn out to be less than 2009," Mistry said. Production in Malaysia could fall below 17.5 million tonnes next year also due to the end of the high output cycle, Mistry said. Indonesia would be less affected with drier weather limiting additional output by 1 million to 1.5 million tonnes, the analyst said, lower than other forecasts by government and industry officials for about 2 million tonnes. 

The weakness in palm oil output growth suggested that additional supply would only reach 3.25 million tonnes in the year to September 2010 against incremental demand of 5.5 million, Mistry said. Source: The Star, Saturday December 6, 2009 Based on the above article, answer the following questions.

a) Explain law of demand.

b) List two (2) reasons why the price of palm oil is forecasted to increase by the first quarter of 2010.

c) Based on the reasons that you gave in (b), using a diagram show the situation in the market that causes the price of palm oil to increase in the future.

d) What will be the effect of an increase in the price of palm oil on the demand for soya oil? State the relationship between two products.

e) With the aid of a diagram, show the relationship between palm oil and soya oil.