Global palm oil prices are expected to rise next year to around US$850/tonne or more, according to market experts speaking at the International Palm Oil Congress and Exhibition (PIPOC) on 7-9 November.
Crude palm oil (CPO) prices would average RM4,100 (US$871)/tonne in 2024, according to Ivy Ng Lee Fang, head of Malaysia research and regional head of agribusiness research at CIMB Investment Bank Bhd.
This was due to several factors including:
- Flattish global palm oil supply next year, with Malaysia producing 18.2M tonnes and Indonesia producing 48M tonnes.
- Lower yields from ageing palm oil estates, the impact of the El Niño weather phenomena, reduced fertiliser input in prior years and lower productivity from new workers affecting palm oil supply.
- Continuing biodiesel demand from Indonesia’s B35 blending mandate and high crude oil prices due to geopolitical risks.
- Likely lower oilseed supply due to lower selling prices, logistical challenges and potential adverse weather conditions.
Ng said one of the key factors to watch out for in 2024 was the current El Niño, which tended to bring dry weather in Malaysia, Indonesia and some parts of South America and typically led to higher CPO prices.
Current indications were that the current El Niño was not as severe as the last one in 2015/16 but as El Niño affected yields a year later, the first impact might only be seen in the second half of 2024, with no buffer from young estates or new investments.
Dr Sathia Varqa, co-founder of Palm Oil Analytics, now part of Fastmarkets, said supply risks from weather, sunflower oil pricing and ongoing geopolitical tensions were the main three swing factors in CPO pricing looking ahead.
“The ongoing high production phase in Malaysia and high stocks in China and India is bearish on CPO prices in the short term.”
However, a strong El Niño could result in a 1M tonne production fall.
Varqa forecast CPO prices trading at a high of RM4,000-4,200 (US$850-892)/tonne next year.
Thomas Mielke, CEO of Oil World, said the palm oil market had seen big price swings in the past three years between US$530/tonne in May 2020 to US$1,900/tonne in March 2022.
“I would not be surprised if there is even more volatility in coming years.
“World palm oil supplies are currently sufficiently large but today’s bearish market sentiment in vegetable oils is temporary.”
He said consumers had been lucky that the negative palm oil growth trend had been offset by unusually large increases in sunflowerseed and rapeseed production in the past year, which was unlikely to continue.
Mielke said palm oil was the backbone of the global oils and fats industry, with top producers Indonesia and Malaysia satisfying more than 50% of world vegetable oil export demand.
However, annual palm oil growth was likely to slow to only an optimistic 1.7M tonnes/year, due to insufficient supplies of high quality seedlings and planting moratoriums leading to just 300,000ha in new plantings worldwide
This compared with Brazil, which had increased soyabean plantings to 6M ha in the past three years, which was more than the current area planted to oil palm in Malaysia.
Mielke said growth in world production of oils and fats would slow to 4.2M tonnes in the October 2023-September 2024 period and stocks would decline in 2024, while there would be further growth worldwide for food and biofuels.
At around US$810/tonne fob, Mielke said palm oil prices were currently undervalued.
Only a few triggers were needed to push prices further such as deteriorating weather in a major area, recovery of purchases, geopolitical developments, export restrictions or Black Sea export problems.
He forecast palm oil prices rising by at least US$100/tonne in the next four to six months.
Julian McGill, managing director of Glenauk Economics, noted that top palm oil producer Indonesia may only increase production by 0.5M to 1M tonnes this year, with flat or declining output next year depending on the current unusual El Niño, which was producing different weather patterns, such as drought in Brazil rather than rain.
He noted that US biodiesel demand was shifting towards soyabean oil, which would require significantly greater volumes of crushing, with 45% of US soyabean oil now being used for biodiesel and renewable diesel.
Demand for byproduct soyabean meal was not growing quickly enough to absorb the additional output, particularly once crushing recovered in Argentina, which had seen its 2022/23 soyabean production halve to around 20M tonnes due to a historic severe drought.
This would lead to higher vegetable oil prices in 2024 as soyabean crush increased, with Malaysian CPO prices expected to increase to RM4,000 (US$850)/tonne by the end of 1st quarter 2024.