Palm price recovery hinges on Indonesian biodiesel mandate-Mistry

* Mistry now sees Malaysian palm stocks peaking at end-November

* Indonesian palm output seen up at 31.5 million tonnes in 2015

* Keeps forecast for rise in palm price to 2,500 ringgit by March

By Anuradha Raghu

Nov 28 (Reuters) - A recovery in palm oil futures over the next year will hinge on Indonesia's biodiesel mandate, leading vegetable oil analyst Dorab Mistry said on Friday, while reiterating his forecast for a rise in prices to 2,500 ringgit per tonne by March.

Palm prices have recovered 13 percent from five-year lows of 1,914 ringgit ($567) hit in September but are still down almost 19 percent for the year, partly on disappointing uptake of palm-based biofuel by top grower Indonesia.

"Indonesia holds the key to price discovery for the next 12 months," Mistry said at a conference in Bandung, Indonesia.

"Will Indonesia implement the mandate smoothly or will it drop the mandate temporarily and wait for better times?" he said, referring to the country's requirement for a minimum 10 percent bio content in diesel.

Mistry kept his forecast that palm prices had bottomed out and would reach 2,500 ringgit by March, before climbing higher as inventories shrink to their lowest in June.

But the price gain will depend on Indonesia's biodiesel targets which have been "toothless", he said.

Despite introducing ambitious regulations to boost the use of palm-based biodiesel, Indonesia is set to miss its targets this year due to logistical and infrastructure problems.

SUPPLIES IN FOCUS

Indonesian palm output may rise to 31.5 million tonnes in 2015 from 30 million tonnes projected for this year, and jump another 2.5-3 million tonnes in 2016 as large areas of oil palm acreage mature, Mistry said.

But output next year in No.2 grower Malaysia is unlikely to exceed this year's estimated 19.6-19.8 million tonnes, said Mistry, who heads the vegetable oil trading arm at India's Godrej Industries.

He revised his outlook for Malaysian palm oil stockpiles and sees them hitting this year's peak in November, a month later than previously estimated. Inventories soared to a 20-month high of 2.17 million tonnes at end-October.

Palm prices will also take direction from global supply of soybeans, which are crushed to produce soyoil, and crude oil prices, Mistry said. Weak crude prices make palm less appealing for blending into biofuels.

Oil futures have tumbled to four-year lows amid ample supply and came under further pressure on Thursday after OPEC decided not to cut oil output.

"If Indonesia ignores its (biodiesel) mandate completely, the palm oil industry will face a crisis in the last half of 2015," Mistry said.

($1 = 3.3770 ringgit) (Reporting by Anuradha Raghu in KUALA LUMPUR; Editing by Himani Sarkar)