KUALA LUMPUR (Feb 20): BMI, a Fitch Solutions company, said it had made an upward revision of its forecast for the average price of Bursa Malaysia-listed third-month palm oil futures contracts in 2024, from RM3,515 per tonne to RM3,750 per tonne.

In a note on Monday, the firm said that in part, this reflects the subsequent persistence of price strength that started in the third quarter of 2023, which saw contracts rise by 23.2% between start-June and start-September.

It said that at the same time, palm oil prices had more or less traded within 5% of RM3,851 per tonne (+/- RM193 per tonne) since mid-2022.

“Our revised forecast, however, does still point to a softening of prices from their current levels through 2024, with palm contracts having traded at an average level of RM3,830 per tonne though 2024 up to Feb 14, 2024,” it said.

BMI said that in the short term, it considers palm oil prices to be capped in light of price trends in the wider edible oils complex, expectations for large soybean harvests in major producers, and weak demand in Mainland China.

Moreover, it said the impact of the El Niño event, now expected to dissipate between April and June 2024, on cultivation conditions in Indonesia and Malaysia is thought to be quite subdued.

Meanwhile, the firm said the expected transition to La Niña conditions between June and August 2024 could weigh on market sentiment, testing price support.

“As for the recent Indonesian election, we note that all three major candidates were more or less united in adopting a set of pro-oil palm sector policies.

“We remain of the view that average palm oil prices will fall in 2025 relative to 2024, a reflection of a high base as well as the potential for a La Niña event to support oil palm cultivation, but at the same time have made an upward revision our price forecast, now projecting that contracts will trade at an average level of RM3,500 per tonne.

“However, we have also reinforced the tail end of our price outlook in order to reflect a deceleration in the rate of palm oil export growth in Indonesia and Malaysia, which reflects the former’s commitment to higher domestic biodiesel blending mandates as well as a shift in oil palm production growth drivers in both markets,” it said.

BMI said the world palm oil market will generate a production surplus of two million tonnes in the 2023/2024 season, a three-season low.

“We forecast that this surplus will increase through the medium term, anticipating a surplus of 2.5 million tonnes in the 2024/2025 season and season-on-season increases of 200,000 to 300,000 tonnes thereafter,” it said.