KUALA LUMPUR (Nov 11): Palm oil prices, which have recently surged above the RM5,000 mark, are expected to remain elevated through the first quarter of 2025 (1Q2025) amid tight supplies from both Indonesia and Malaysia as well as the upcoming implementation of Indonesia’s B40 biodiesel mandate. However, further price increases are likely to be limited, according to BMI, a unit of the Fitch Group.
The upward momentum will be trimmed by a seasonal ebb in palm oil import demand in the northern hemisphere, while the passing of Diwali in India will see festival-driven import demand ease, BMI said in a note on Monday.
However, it noted that market sentiment will remain sensitive to supplies in Indonesia and Malaysia.
On that note, it said the anticipated onset of La Niña conditions in 4Q2024 could see an improvement in production expectations in both markets. Current projections also point to a La Niña event of mild strength, which should minimise the risks that support above-average rainfall transitions into excess rainfall and flooding, said BMI.
"Our outlook is sensitive to both the timing of Indonesia’s prospective adoption of a B40 biodiesel blending mandate as well as the speed with which the rollout of B40 fuel takes place," it added.
The benchmark third-month crude palm oil futures have risen by 35% this year to RM5,032 per tonne on Monday — driven by reduced production in Indonesia and Malaysia, along with a drawdown in inventories — while the Bursa Malaysia Plantation Index has increased by more than 10% year-to-date.
Heading into 1Q2025, palm oil price will face challenges, BMI projected, due to the rare price premium that palm oil has established over soybean oil since early September.
“While palm oil demand in the food processing sector is expected to remain inelastic in the near term (due to palm oil’s particular functional specifications), edible oil substitution at the household level could occur,” it said.
BMI cited the Solvent Extractors’ Association of India, which estimates that palm oil imports in 2023/2024 will decrease to 9.2 million tonnes from 9.8 million tonnes in 2022/2023.
Price-driven substitution of edible oils has been identified as one factor weighing on demand, it said.
World palm oil production surplus to narrow
Global palm oil production surplus is expected to shrink from an estimated 1.8 million tonnes in 2023/2024 to a four-season low of 1.1 million tonnes, BMI said.
This contrasts with the US Department of Agriculture’s current forecasts, which predict surpluses of 2.2 million tonnes in 2023/2024 and 1.7 million tonnes in 2024/2025.
“With respect to production, we see world palm oil output climbing from 76.6 million tonnes in 2022/2023 to an estimated 77.0 million tonnes in 2023/2024 and then to a forecasted 79.6 million tonnes in 2024/2025.
“The anticipated onset of La Niña in 4Q2024 poses bidirectional risks to our production forecast — above average rainfall poses an upside risk to output, while intense rainfall and flooding pose a downside risk to output — that will be mediated via the duration and strength of the event,” it said.
On the demand side, BMI sees world palm oil consumption climbing from 74.3 million tonnes to an estimated 75.2 million tonnes in 2023/2024 and a forecasted 78.5 million tonnes in 2024/2025.