KUALA LUMPUR (Oct 8): Crude palm oil (CPO) prices have been trading at a premium over soybean oil for eight months. The premium pricing, however, is not sustainable, according to David Mielke, senior analyst and director at ISTA Mielke GmbH (Oil World), because of expected higher CPO production coupled with tight supplies of sunflower and rapeseed oil.
He anticipates the premium on CPO prices will normalise in the near future, meaning CPO would be priced at a discount over soybean oil.
Mielke pointed out that the current CPO prices have factored in the upside potential in the next 12 months following the recent climb. In the past two weeks, CPO has climbed US$90 (RM386) against the average price in September.
“Production of palm oil has recovered, especially with Indonesia ramping up output, so the (CPO) supply situation is likely to improve. However, palm oil will be the weakest member of the complex, as other (edible) oils are more bullish, which means palm oil will need to go on discount again,” Mielke told The Edge at the sidelines after the Malaysian Palm Oil Forum, an event organised by the Malaysian Palm Oil Council, on Tuesday.
“The timing of when palm oil loses its premium is always difficult to predict,” said Mielke, noting that the supply of soybean oil is getting tight, there isn’t enough to meet the global demand.
“Soybean oil prices cannot sustain themselves for the next 12 months because there simply isn’t enough soybean oil available for export,” he added.
Oil World forecasts the average export price for RBD palmolein for January to June 2025 to be at US$1,120 per tonne, up from US$894 in the same period in 2023.
According to Bloomberg, the three-month CPO futures, which hit a high of RM4,343 per tonne on Oct 7, were trading at RM4,271 per tonne at the time of writing.
On another note, Mielke projected that Malaysia’s palm oil production will reach 19.6 million tonnes this year, compared with 18.55 million tonnes last year. However, he expects the production to shrink in 2025 due to a biological yield cycle, resulting in fewer female flowers being pollinated, and subsequently lower hormone levels.
Regarding sustainable aviation fuel (SAF), Mielke said that the slow growth in global supplies of used cooking oil, tallow, grease, and other non-food feedstocks will continue to create a high dependence on palm oil, soybean oil, and rapeseed oil as key feedstocks for biofuel production.
He noted that currently, 20% of total global consumption of oils and fats is utilised by the energy sector.
SAF is an alternative fuel derived from non-petroleum feedstocks that helps reduce emissions from air transportation. It can be blended with conventional jet fuel at various levels, typically ranging from 10% to 50%, depending on the feedstock and production methods used.