Anticipated increases in global palm oil prices are forecasted to reach approximately US$850 per tonne or higher in the coming year, as experts discussed at the International Palm Oil Congress and Exhibition (PIPOC) held on November 7-9. Projections by Ivy Ng Lee Fang, the Head of Malaysia Research and Regional Head of Agribusiness Research at CIMB Investment Bank Bhd, suggest that crude palm oil (CPO) prices are expected to average RM4,100 (US$871) per tonne in 2024. Several contributing factors underlie this forecast, including :
A relatively stable global palm oil supply expected for the next year, with Malaysia and Indonesia producing 18.2 million tonnes and 48 million tonnes, respectively
Decreased yields from aging palm oil estates
The influence of the El Niño weather phenomenon
Reduced fertilizer input in preceding years, and lower productivity from new workers are cited as factors impacting palm oil supply.
The demand for biodiesel, driven by Indonesia’s B35 blending mandate and elevated crude oil prices due to geopolitical risks, is anticipated to persist
Potential constraints on oilseed supply are predicted owing to lower selling prices
Logistical challenges
Possible adverse weather conditions.
Ivy Ng emphasizes the significance of monitoring the current El Niño in 2024, as it historically results in dry weather in Malaysia, Indonesia, and some parts of South America, contributing to higher CPO prices. Although the present El Niño is perceived as less severe than the 2015/16 event, its impact on yields may only become apparent in the second half of 2024, lacking a buffer from young estates or new investments.
Dr. Sathia Varqa, co-founder of Palm Oil Analytics, identifies supply risks stemming from weather conditions, sunflower oil pricing, and ongoing geopolitical tensions as the primary influencing factors in CPO pricing in the future. Despite the bearish market sentiment in the short term due to high production in Malaysia and substantial stocks in China and India, a strong El Niño could potentially result in a one million tonne production decrease. Varqa forecasts CPO prices to trade within the range of RM4,000-4,200 (US$850-892) per tonne in the coming year.
Thomas Mielke, CEO of Oil World, highlights the historical volatility in palm oil prices over the past three years and anticipates further fluctuations in the future. He asserts that while current world palm oil supplies are sufficient, the temporary bearish market sentiment in vegetable oils is offset by unusually large increases in sunflowerseed and rapeseed production. Mielke underscores the pivotal role of palm oil in the global oils and fats industry, with Indonesia and Malaysia jointly satisfying over 50% of the world’s palm oil export demand.
Nevertheless, he anticipates a slowdown in annual palm oil growth to a modest 1.7 million tonnes/year, attributing this to insufficient supplies of high-quality seedlings and planting moratoriums resulting in only 300,000 hectares of new plantings globally. In contrast, Brazil’s soybean plantings have expanded to six million hectares in the past three years, surpassing the current oil palm area in Malaysia.
Mielke predicts a deceleration in the world production of oils and fats to 4.2 million tonnes in the October 2023-September 2024 period, with a subsequent decline in stocks in 2024. However, he anticipates continued growth worldwide for food and biofuels. At present, he considers palm oil prices to be undervalued at around US$810 per tonne fob, and he expects prices to increase by at least US$100 per tonne in the next four to six months.
Julian McGill, Managing Director of Glenauk Economics, underscores Indonesia’s limited potential for increased palm oil production, estimating an increase of 0.5 million to 1 million tonnes this year, with flat or declining output projected for the next year. McGill notes that U.S. biodiesel demand is shifting towards soybean oil, necessitating a significant increase in crushing capacity. Approximately 45% of U.S. soybean oil is now used for biodiesel and renewable diesel. As demand for byproduct soybean meal fails to match the increased output, higher vegetable oil prices are expected in 2024 as soybean crush rises. Malaysian CPO prices are predicted to increase to RM4,000 (US$850) per tonne by the end of the first quarter of 2024.