KUALA LUMPUR (Oct 3): Crude palm oil prices (CPO) are expected to recover in mid-October this year, trading around RM3,700 per tonne to RM3,900 per tonne due to lower production impacted by the El Nino phenomenon, according to Palm Oil Analytics (Fastmarkets) managing director Dr Sathia Varqa. 

CPO prices have been hovering just below RM3,700 in recent weeks.

Speaking at the MPOA National Palm Oil Conference 2023 (NPOC23) on Tuesday, he said the strong El Nino phenomenon will reduce the CPO yield by 5% and reduce production by about one million tonnes in 2024.

As a result, he predicted that CPO prices will peak at RM4,000 to RM4,300 per tonne in the first half of 2024.

“The average [CPO] price for this year is RM3,800 per tonne, next year it will be higher at around RM4,000 per tonne.

“But the higher prices will not be sustained because of demand rationing. The market is always looking for edible oil at more competitive prices, such as sunflower oil and soybean oil,” he said. 

“Countries like India, China, Egypt, Iran and even the Philippines are price-sensitive. They can get cheaper soybean oil from Argentina, so why not...  instead of just buying palm oil,” Sathia added. 

Malaysia and Indonesia are the largest palm oil exporters in the world. Malaysia’s exports fell 2.44% year-on-year (y-o-y) in the first nine months of 2023 (9M2023), while Indonesia’s exports rose 12% y-o-y in 8M2023, Sathia said, citing the Malaysian Palm Oil Board data. 

According to Sathia, Malaysia’s lacklustre export performance is related to weak export demand particularly in China and especially for the refined, bleached and deodorized (RBD) palm oil olein.

RBD palm oil olein is used in cooking.

“Malaysia has lost significant market share in China due to its relatively higher prices of RBD palm oil olein compared to Indonesia. China has been buying from Indonesia and it is also increasing its reliance on soybean oil.

China would import soybeans which are crushed into meal to cater to the feed industry, while the by-product soybean oil is used in the edible market segment which competes with palm oil,” explains Sathia.

Total exports from Malaysia and Indonesia to China currently stand at 4.6 million tonnes.

“Whether they can return to pre-Covid-19 exports of seven million tonnes to China this year is a big question,” Sathia said.