Palm to climb to 2,500 ringgit by May, but drop in H2 as supply rises -Mistry

* Palm prices to drop after July as supply picks up

* Malaysian palm output seen steady at 2014 levels

* Raises estimate for India's 2014/15 vegoil imports

By Anuradha Raghu

KUALA LUMPUR, March 4 (Reuters) - Palm prices are expected to rise about 5 percent from current levels to 2,500 ringgit per tonne by May as global edible oil demand outstrips supply, but could drop later in 2015 as output recovers, leading vegetable oil analyst Dorab Mistry said.

Malaysian palm prices have already risen over 5 percent this year, after an almost 15 percent drop in 2014 when high rival oilseed supplies and sliding crude oil prices dented demand for the tropical oil from the food and energy sectors.

"The rise (in prices) will unfold as the market realises the shortfall in production and as stocks look like going down to unforeseen levels in Malaysia," Mistry said at a palm oil conference in Kuala Lumpur on Wednesday. His forecast was based on Brent crude prices between $50 and $75 per barrel.

He had earlier projected that palm prices would reach 2,500 ringgit ($686) by March. Benchmark futures are currently at around 2,390 ringgit.

Mistry said prices could drop to as much as 2,100 ringgit by December as production picks up after July.

"This is going to be a year of two halves. Demand will outstrip supply in the first six months and gradually supply will increase in the second half," Mistry said.

"Until July, world vegetable oil stocks and particularly palm oil stocks will remain very tight."

TIGHT STOCKS, BUT SUPPLY TO PICK UP

If the current hot weather stretches into mid-March, Malaysia's palm output may even drop below 19.5 million tonnes, versus last year's record 19.7 million tonnes, leading to tighter inventories, Mistry said.

Malaysia's end-stocks are expected to continue shrinking and will hit a "tight zone" of below 1.5 million tonnes by mid-2015, after reaching a 6-month low of 1.77 million tonnes in January.

"That should make strong inverses a feature of price outlook this year," said Mistry, who heads the vegetable oil trading arm at India's Godrej Industries.

Malaysia, the world's No.2 palm producer after Indonesia, will "at best" churn out the same amount of the tropical oil this year as 2014, Mistry added.

However, global production may expand by as much as 3-4 million tonnes between October 2015 and September 2016, he said.

Indonesian inventories could bottom out at 2.5 million tonnes in July before climbing to 4.65 million tonnes by December, Mistry estimated.

He still sees Indonesian palm output at 31.5 million tonnes this year, up from 30 million tonnes he had projected for 2014.

SOYOIL COULD DENT PALM DEMAND

Palm prices are also set to face headwinds from bumper soy harvests that will drag on prices of rival soyoil.

"We were blessed with 3 big harvests - 2014 South America, 2014 USA and now 2015 South America. As a result we are seeing a soft trend in soya oil prices ... India is increasing its imports of soya oil precisely for this reason," Mistry said.

Given its own dismal oilseed output, India, the world's top edible oil consumer and the biggest palm oil buyer, will book record shipments of cheap soyoil between June and July, he added.

Mistry raised his estimates for India's vegetable oil imports to 12.6 million tonnes in the year to September 2015, from 12.3 million tonnes forecast earlier.

He still expects global edible oil demand growth to offset a supply rise, but he trimmed estimates for both.

He projected demand growth of 3.5 million tonnes for the year to September 2015, versus a 3.1 million tonne supply growth. This compares with his prior forecast of 4.5 million tonnes and 3.95 million tonnes, respectively. ($1 = 3.6430 ringgit) (Editing by Himani Sarkar)