KUALA LUMPUR (Oct 25): While bullish drivers for crude palm oil (CPO) prices may be strong in the immediate term, they are expected to dissipate through end-2024, said BMI, a Fitch Solutions company.

This is on the back of potential positive impact from La Nina on oil palm fruit cultivation in Malaysia and Indonesia, as well as easing demand seen in the fourth quarter of 2024 on Northern winter season and India import tariffs.

BMI forecasts an average palm oil price of RM3,850 per tonne for 2024 and RM3,650 per tonne for 2025. This compares with Bursa Malaysia-listed CPO futures, which rose to above RM4,600 per tonne at the time of writing — the highest in over two years.

In October alone, palm oil prices rose by 14% as El Nino weighed on export supplies, coupled with concerns over geopolitical risks in the Middle East, a slight depreciation in ringgit which benefits ringgit-denominated palm oil contracts, and elevated risk premia in global fuel markets, BMI said.

“In our view, however, the bullish price drivers described above are time-limited and, while continued price strength in the immediate term is probable, will dissipate through end-2024," said BMI.

That said, the research house cautioned about factors like the B40 mandate (40% biodiesel requirement) and geopolitical risks may skew risks to the upside.

“The timing and pace of a potential B50 [biodiesel] rollout represents one of the principal upside risks to our palm oil price forecast in 2025,” it added.

At the end of September 2024, inventories of CPO in Malaysia stood at 1.06 million tonnes compared to 1.37 million tonnes in September 2023, according to the Malaysian Palm Oil Board.

Looking ahead, palm oil import demand is expected to ease in the fourth quarter of 2024, driven by the usual seasonal slowdown during the Northern Hemisphere winter and further impacted by India's recent hike in tariffs on crude and refined edible oils.