KUALA LUMPUR (April 7): CIMB Securities believes the crude palm oil (CPO) prices will be significantly impacted by the US-China trade war-led tariffs on the commodity, amid lower crude oil price.

“Lower crude oil prices, if sustained, may reduce the viability of biodiesel mandates and exert downward pressure on CPO prices. 

“We maintain our 2025 average CPO price forecast at RM4,200 per tonne. 

“We estimate that every RM100 per tonne change in CPO price could impact FY2025 earnings for planters under our coverage by 3% to 7%,” said the house in a note on Monday.

Despite near-term risks, CIMB Securities retained its “overweight” stance on the sector, given limited direct exposure to US tariffs and potential long-term structural supply issues that may be exacerbated by the tariffs.

Palm oil exports to the US will be subject to a 10% import tariff starting immediately. Beginning April 9, US tariffs will increase to 24% for Malaysian palm oil, and to 32% for Indonesian palm oil. 

“These tariffs will raise the cost of palm oil for US end-users. The tariff-induced price increase is likely to drive US food manufacturers and consumers to substitute palm oil with more competitively priced domestic alternatives, such as soybean oil — benefitting US soybean farmers.”

On a positive note, the US is a relatively small consumer of palm oil, accounting for just 1.9 million tonnes of global palm oil consumption of 78 million tonnes, or approximately 2.4% of global palm oil usage. 

In 2024, Malaysia exported only 191,000 tonnes of palm oil to the US, representing around 10% of the US’ palm oil imports and 1.1% of Malaysia’s total palm oil exports.  

“The eight percentage point (pp) tariff differential between Malaysia and Indonesia may allow Malaysian palm oil producers to gain market share in the US at the expense of Indonesian counterparts — providing a slight competitive advantage for Malaysian players. Currently, the US imports around 85% of its palm oil from Indonesia and 10% from Malaysia,” added CIMB.

On Friday, China’s Ministry of Finance announced an additional 34% tariff on all US goods starting April 10, on top of an existing 10% tariff imposed last month, as a bid to match US President Donald Trump’s trade measures.

US soybeans are subject to a total of 44% tariff in China starting April 10, putting renewed pressure on US farmers, as China accounted for approximately 52% of exports in 2024, according to the investment firm in a statement on Monday.

“The newly imposed 34% tariff effectively prices US soybeans out of the Chinese market. As a result, China will likely ramp up purchases from Brazil, Argentina, and other soybean producing countries,” said the research firm.

Analysts observed that Brazil and other countries, which are tariff-free, are eyed as alternative markets for China, as they shift soybean purchases away from the US, although this raised issues with logistical constraints that could limit how quickly it could meet China’s demand.

While palm oil may see indirect benefits if China reduces soybean crushing activity, CIMB warned that it may result in a shortfall in domestic soybean oil supply.

Its analysts noted that crude oil sees a sharp 13% drop in prices to US$66 per barrel (US$484 per tonne) that negatively affects biodiesel production, which depends heavily on edible oils like palm and soybean oil.

“Lower fossil fuel prices make biodiesel relatively more expensive, increasing the fiscal burden on governments that subsidise biodiesel blending programmes,” said the firm.

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