BMI REVISES 2024 FORECAST FOR PALM OIL FUTURES CONTRACTS TO RM3,750 FROM RM3,515 PER TONNE

BMI Country Risk & Industry Research (BMI), a product of Fitch Solutions Group Ltd, has made an upward revision to its forecast for the average price of Bursa Malaysia-listed third-month palm oil futures contracts in 2024 to RM3,750 per tonne from RM3,515 per tonne previously. 

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It said in a statement that in part, this reflects the subsequent persistence of price strength that started in the third quarter (3Q) of 2023, which saw contracts rose by 23.2% between start-June and start-September. 

At the same time, it said palm oil prices have more or less traded within 5% of RM3,851 per tonne (+/- RM193 per tonne) since mid-2022. 

Its revised forecast, however, does point to a softening of prices from its current levels through 2024, with palm contracts having traded at an average level of RM3,830 per tonne up to 14th February, 2024.

“In the short term, we consider palm oil prices to be capped in light of price trends in the wider edible oils complex, expectations for large soya bean harvests in major producers and weak demand in China. 

"Moreover, the impact of the El Niño event, now expected to dissipate between April and June 2024, on cultivation conditions in Indonesia and Malaysia is thought to be quite subdued," said BMI. 

Meanwhile, the expected transition to La Niña conditions between June and August 2024 could weigh on market sentiment, testing price support. 

BMI viewed that average palm oil prices would fall in 2025 relative to 2024, a reflection of a high base as well as the potential for a La Niña event to support oil palm cultivation, but at the same time have made an upward revision to its price forecast, now projecting that contracts would trade at an average level of RM3,500 per tonne. 

However, it also reinforced the tail end of its price outlook in order to reflect a deceleration in the rate of palm oil export growth in Indonesia and Malaysia, which reflects the former's commitment to higher domestic biodiesel blending mandates as well as a shift in oil palm production growth drivers in both markets.

"In our view, the world palm oil market will generate a production surplus of 2.0 million tonnes in the 2023/24 season, a three-season low. 

"We forecast that this surplus will increase through the medium term, anticipating a surplus of 2.5 million tonnes in the 2024/25 season and season-on-season increases of 0.2-0.3 million tonnes thereafter," it said. 

In terms of price, it maintained that average annual palm oil prices would decline through its forecast period, projecting mean prices of RM3,400 per tonne in 2026, RM3,300 per tonne in 2027 and RM3,205 per tonne in 2028. 

Risk factors to its outlook include the development of biodiesel policies, the evolution of alternative edible oils' prices and sustainable production efforts.