Analysts forecast lower CPO prices from 2Q onwards for this year

KUALA LUMPUR: Malaysia’s crude palm oil (CPO) is expected to trade lower from the second quarter onwards this year after witnessing high prices of RM4,000 per tonne in the first quarter of 2024, said Fastmarket Palm Oil Analytics senior analyst Sathia Varqa.

He said supply risk from weather and geopolitical tension are the two main swing factors in CPO pricing in 2024.

“Malaysia’s palm production is to enter a high output phase from March 2024, keeping prices under pressure. This is likely to be made worse by high stocks both in China and India.

“In the event of a strong La Nina, production will be higher in 2024, so the most optimistic number is about 19 million tonnes for Malaysia.

“We see high prices only in the first quarter and thereafter high prices will unlikely to be sustained,” he said during the panel session titled Global Economic 2024-2025 and the impact on Commodities at the 35th Palm and Lauric Oils Price Outlook Conference and Exhibition (POC2024) here today.

He shared that production is projected to marginally increase to between 18.75 million and 18.95 million tonnes in 2024 from 18.55 million tonnes in 2023.

In addition, he said exports is projected to increased by 5.76 per cent to 16 million tonnes in 2024 from 15.13 million tonnes in 2023.

“That meant stocks were elevated above two million tonnes for about six months and we are likely to see the first fall in stocks in February 2024 to below two million tonnes,” he added.

Meanwhile, CIMB Investment Bank’s head of Malaysia and agribusiness research, Ivy Ng expects CPO prices to average at RM3,900 per tonne in 2024 due to increase in biodiesel demand in Indonesia.

She said palm oil supply will be higher due to the biodiesel mandate introduced by the Indonesian government which saw an increase in biodiesel blending of up to 40 per cent and the upgrade from B35 to B40 biodiesel fuel.

“We estimate long-term average CPO prices at around RM3,500 per tonne to reflect higher costs. The full implementation of the B35 mandate in Indonesia is expected to be supportive of CPO prices in the first half of 2024 (1H 2024).

“However, stiffer competition from other edible oils and high edible oil stocks at destination markets will likely limit price upside in 1H 2024,” she said.

On Malaysian planters, Ng said optimum output growth of fresh fruit brunches (FFB) will likely be maintained in 2024 as a result of higher FFB yields and minimal weather disruption from El Nino with the cost of production likely to trend lower in 2024 due to higher production and lower fertiliser costs.

“I think the El Nino phenomenon last year impacted palm oil supply on the second half of the year. Also, we have aging estates and shortages in workers in Malaysia, so we are not reaching our full potential.

“We are also seeing how much growth in terms of supply of palm oil so that will keep the price supported at an entry line level, last year we average around 3,800 so this year slightly better,” she said.

ISTA Mielke GmbH (Oil World) executive director Thomas Mielke expects CPO futures to trade in the range of RM3,800 to RM4,300 per tonne from April to June 2024 supported by the global supply and demand fundamentals.

He said palm oil is still dominating the global market of oils and fats with a production share of 32 per cent and an export share of 53 per cent (from only six per cent of the area) – Malaysia palm oil production forecast to range close to 18.6 million tonnes in 2024.

On the effort of the Ministry of Plantation and Commodities to increase palm oil yield, Mielke said the rate of replanting had improved last year. – BK