Palm oil prices to stay elevated amid supply squeeze
Malaysia’s palm oil supply has hit a 21-month low, supporting high prices around RM4,500–RM5,000 per tonne. The Malaysian Palm Oil Council expects a short-term rally due to Indian imports and rising soybean oil prices. However, analysts predict easing prices later in 2025 as biodiesel policies shift and production stabilizes. Upstream planters are poised to benefit most.
KUALA LUMPUR: The palm oil sector faces a supply squeeze, which is not a bad thing as this is expected to ensure prices of the commodity remain elevated, industry observers said.
Malaysia’s palm oil inventory plunged to 1.58 million tonnes in January, the lowest in 21 months, despite a 13 per cent drop in exports and a sharp 133 per cent increase in imports from Indonesia.
The country has been experiencing a year-on-year production decline since September 2024, with the fall becoming more pronounced in January, hitting a 21-month low of 1.23 million tonnes.
The Malaysian Palm Oil Council (MPOC) said palm oil prices are projected to rally to RM4,850 pder tonne in the coming weeks before retreating.
“The price rally will be supported by recovering palm oil imports from India, as well as rising soybean oil and sunflower oil prices,” MPOC said today.
The council added that the recent policy changes in the US and Indonesia had also affected the market.
“This is expected to drive the demand for US soybean oil as a source of biodiesel feedstock. Meanwhile, Indonesia’s decision to restrict UCO and palm residue exports to support its biodiesel program is expected to boost export supply of palm oil as peak production season approaches, which may cap further price rally,” it said.
CPO Prices To Stay High Amid Low Supply
MIDF Research expects the current crude palm oil (CPO) prices to stay high, hovering within the range of RM4,500 to RM5,000 per tonne. This will be driven by restocking activities in preparation for pre-Ramadhan demand amid slower palm oil output and lower closing stock.
The firm maintained a positive outlook on the sector, but foresees only a handful of players likely to benefit from elevated CPO prices.
Unlike in 2022, the firm said the current local CPO production (as of third quarter of 2024 results) is underperforming, with many small planters such as TSH Resources Bhd, Ta Ann Holdings Bhd and Sarawak Plantation Bhd unable to fully capitalise on higher CPO prices due to a contraction in production and sales volume.
“This was mainly due to reduced external fresh fruit bunch (FFB) purchases from smallholders, who have struggled due to factors such as lack of fertiliser application, inadequate upkeep and difficulty in evacuating FFB during wet weather, compounded by a lack of machinery,” it said.
Price To Ease In Second Half?
After surging in December 2024, Kenanga Research said CPO price had softened but stayed high at RM4,673 per tonne, firmer than its full-year estimate of around RM4,000 per tonne.
However, the firm expects prices to ease in the latter half of the year.
On the other hand, Kenanga Research said as anticipated by the market, CPO’s recent narrowing in price premium to other edible oil such as soybean oil is against a backdrop of its unusually large premium in Q4 2024.
The firm said although UCO does not affect the virgin edible oil market, it does show how sizable the overall biodiesel market is today, approaching 25-30 per cent of the underlying primary edible oil market.
If edible oil prices soared higher and food inflation being politically sensitive, governments are more likely to tweak down biodiesel usage via top-down policies such as lower subsidies, quotas or push for more UCO biodiesel, possibly even electric vehicles.
“As such, there is an implied longer term constraints on edible oil prices if prices were to soar persistently; hence, Kenanga’s expectation is a firm outlook for CPO prices over 2025-2026 rather than outright bullish,” it added.
Despite some near-term adjustments, an industry observer said the palm oil sector is still a compelling investment opportunity this year.
With supply constraints expected to persist, upstream planters stand to benefit the most, the observer added.
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Source : Business Times
