KUALA LUMPUR (Dec 17): Crude palm oil (CPO) prices are expected to be firm above RM4,800 per tonne, said the Malaysian Palm Oil Council (MPOC), on the back of price recovery in soybean oil due to growing usage in the US biofuel industry and tightening Malaysian production and inventory.

However, the extent of this price rally will hinge on supply conditions in Malaysia and Indonesia, particularly if severe monsoons persist throughout December, further disrupting production, the MPOC said in a statement.

“Additionally, subdued energy prices will act as a limiting factor for palm oil price rally, as palm oil remains US$400 (RM1,779) per tonne more expensive than gas oil, necessitating substantial government subsidies to make palm oil viable for biodiesel blending,” MPOC said.

Soybean use in US biofuel is expected to rise in the coming months, after China removed its 13% tax rebate on used cooking oil (UCO) exports beginning this month.

“The US imported 1.07 million tonnes of UCO from China between January to October 2024, which accounted for 34% of UCO feedstocks used in biodiesel production. As a result, soybean oil usage in the US biofuel industry is anticipated to grow steadily in coming months,” MPOC said.

Meanwhile, Malaysia’s palm oil industry, hit by monsoon, already saw production declining since September, and would see year-end inventory fall 21% to 1.8 million tonnes, from 2.29 million tonnes at end-2023.

In the background is stockpiling activities ahead of Indonesia’s B40 biodiesel mandate implementation in January 2025 and a potential revision to Indonesia’s palm oil export levy structure.

“All of this is supportive of palm oil prices as it will limit palm oil export supplies,” MPOC said.

For the first 11 months of 2024, Malaysia’s palm oil export tonnage rose 12.8% to 1.66 million tonnes, and is projected to reach 16.8 million tonnes by year end.

Malaysia’s CPO futures on Bursa Malaysia traded at RM4,894 per tonne for January, and RM4,758 per tonne for March 2025.

The Bursa Malaysia Plantation Index is up 9.4% since the start of the year, hovering near its highest in over two years amid rising prices and production headwinds.