KUALA LUMPUR (Jan 13): Rising production and delays in implementing biodiesel mandates in Indonesia may weaken palm oil prices beyond the first quarter of 2025, even as latest data show a 19-month low stockpile, analysts say.
Crude palm oil (CPO) prices may face pressure as production begins to recover in the second quarter, according to TA Securities. Record soybean supply will also weigh (on CPO prices), with the export season of Brazil and Argentina typically starting in February and extending throughout the year, the firm noted.
Palm oil’s production would then see a “gradual recovery and an upward trend for the remainder of the year,” TA Securities said. By the end of 2025, output could potentially reach 20 million tonnes, thanks to the better weather and improved labour availability, it said.
TA Securities forecasts CPO to average RM3,800 per tonne this year.
Prices of the versatile edible oil used in everything from lipstick to biodiesel have gained 20% last year, whipsawed by worries over supply and concerns over the burgeoning inventory. The benchmark third-month delivery was trading at RM4,482 on Monday.
Prices of CPO are also now commanding a premium over that of competing soybean, with a bumper global production season. That compares to average discounts of US$293 in the last three years, and US$220 in the past five years.
Further, a widening price gap between palm oil and gas oil, coupled with potential operational and cost challenges, may delay or slow the rollout of B40 biodiesel programme in Indonesia, BIMB Securities flagged.
The implementation of B40 in Indonesia — which mandates a mix of 40% palm oil with 60% diesel — may proceed in phases, rather than all at once, the house noted. BIMB Securities also expects CPO prices to trend downward the second quarter onwards, and range RM3,500-RM4,500 per tonne for the rest of 2025.
Exports and stockpile
A near-10% drop in December’s exports to a six-month low of 1.34 million tonnes was likely due to uncompetitive CPO prices and the solidification of palm oil during winter, which complicates storage and consumption, Public Investment Bank noted.
Production, meanwhile, fell due to floods. Inventory in Malaysia, the world’s largest palm-oil producer after Indonesia, shrank to 1.71 million tonnes in December, as data from the Malaysian Palm Oil Board showed.
Exports could fall another 16% month-on-month in January, as the price premium over soybean oil and rapeseed oil pushes buyers towards cheaper alternatives, CIMB Securities said, noting that uncertainties over US biodiesel policy may also keep soybean oil prices weak.
For Hong Leong Investment Bank, stockpiles could continue to decline into January 2025, driven by seasonally weaker exports during winter, and the lack of price competitiveness against other oils.
