Palm oil prices set to rise further in 2025 amid supply concerns, says MARC Ratings
Crude palm oil (CPO) prices are projected to rise to RM4,600 per tonne in 2025, driven by weather disruptions, reduced Indonesian exports, and strong biodiesel demand. Malaysia’s flooding impacts production, with recovery expected in 2026. Supply constraints for substitute oils like soybean and sunflower, exacerbated by drought and geopolitical tensions, further support elevated CPO prices.
KUALA LUMPUR (Dec 20): Crude palm oil (CPO) prices are expected to climb to a higher average of RM4,600 per tonne in 2025, from the projected average of RM4,200 per tonne this year, due to supply-side challenges, including weather disruptions and slow replanting progress.
Reduced exports from Indonesia, the world’s largest palm oil producer, coupled with global supply constraints and adverse weather conditions in Malaysia, have kept palm oil prices elevated throughout this year, said MARC Ratings in a note on Friday.
Palm oil prices are expected to remain high, with demand for palm oil in biodiesel production remaining robust, supported by policy mandates in Indonesia, where the biodiesel blend rate is set to rise to 40% (B40) and later to 50% (B50), from 35% (B35) currently.
The agency anticipates that flooding in key Malaysian production states, which is impacting palm oil production, will continue through the first quarter of 2025. MARC noted that production typically peaks in September or October before declining in the first quarter of the following year.
Weather conditions is expected to normalise only in the latter half of 2025. While this normalization should improve growth and harvesting conditions, the full positive impact on production may not be seen until 2026, MARC said.
On the demand side, MARC expects biodiesel mandates, rising edible oil consumption, and geopolitical factors affecting substitute oils to support prices.
Demand for palm oil in biodiesel production remains strong, driven by policy mandates in Indonesia, where the biodiesel blend rate is set to increase from the current 35% to 40%, with further plans to reach 50%, it noted.
MARC also observed that current palm oil prices are higher than those of substitutes such as soybean oil and sunflower oil, a factor that may constrain demand growth.
However, these substitute oils, including rapeseed oil, are themselves facing potential supply constraints. Drier-than-average weather conditions in major producing regions like Canada, Ukraine, and Russia are expected to impact their production and consequently drive their prices higher, MARC said.
“Additionally, the ongoing Russia-Ukraine conflict continues to disrupt the global sunflower oil supply, keeping inventories tight. Sunflower oil production is projected to decrease to approximately 20 million tonnes in 2025 from 22.1 million tonnes in 2024,” it added.
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Source : The Edge Malaysia
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