KUALA LUMPUR (Nov 21): Fitch Ratings expects average crude palm oil (CPO) prices to be significantly lower in 2024, based on expectations of a higher output of palm and other vegetable oils, due mainly to favourable weather conditions amidst a transition in global weather patterns.

In a statement on Monday, the rating agency said it expects Malaysian benchmark CPO prices to average US$650/tonne (t) next year, compared with US$830/t in 2023.

Fitch said lower prices should weaken producers’ margins and earnings before interest, taxes, depreciation and amortisation (Ebitda), and raise leverage.

However, it sees Ebitda being supported by higher fruit yields, oil output and lower unit production costs.

“Free cash flow (FCF) profiles should also benefit from a release of working capital, on lower inventories and trade receivables.

“Several Fitch-rated issuers have limited rating headroom in terms of credit metrics, but we expect them to support their financial profiles by cutting discretionary capex and dividends,” it said.

The agency said a strong El Nino could start to affect yields from 2H2024 by inducing dry weather, presenting an upside to its price assumptions.