BMI A Fitch Solutions Company has raised its price forecast for Bursa Malaysia-listed third-month crude palm oil futures contracts in 2024 and 2025 from RM3,850 to RM4,050 per tonne and MYR3,650 to MYR3,900 per tonne, respectively. Palm oil contracts traded at an average price of MYR3,990 per tonne in 2024 through November 4, up from a YTD average of MYR3,952 per tonne as of the publication of our previous price forecast on August 20.

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Reasons for Rise in Future Contracts for Crude Palm Oil

Much of palm oil's recent price strength has been supported by concerns about reduced production in Indonesia and Malaysia, as well as an expected drawdown in inventories, according to the House. 

Between October 1, when the palm oil price was MYR 3,995 per tonne, and November 4, the accumulated price increases totalled 22.1%. Price strength in the larger edible oils complex has also contributed to the recent upward trend in the palm oil market. Palm oil prices are expected to remain elevated through the end of 2024 and into 2025, with limited further upside. 

However, market sentiment will remain sensitive to Indonesian and Malaysian supply. In the short term, the seasonal ebb in palm oil import demand during the northern hemisphere winter will reduce upward momentum.

Prospects for the Near Future

The YTD average price of palm oil was, in fact, MYR3,937 per tonne until the end of September. Robust price development has since increased the YTD average by MYR53 per tonne. At the close of business on November 4, contracts reached their highest end-of-session price since June 30, 2022, at MYR4,891 per tonne. 

Supplies: A large portion of the recent strength in palm oil prices has been attributed to worries about decreased production in Indonesia and Malaysia as well as an anticipated reduction in inventories. According to the Indonesian Palm Oil Association's (GAPKI) quarterly report on the country's palm industry's performance, which was published on October 23, domestic inventories dropped to 2.45 million tonnes after hitting a five-year low of 2.51 million tonnes the month before.

Extended Prospects

In contrast to USDA's current projections, which show surpluses of 2.2 million tonnes in 2023–2024 and 1.7 million tonnes in 2024–2025, BMI predicts that the world palm oil production surplus will contract from an estimated 1.8 million tonnes in 2023–2024 to a four-season low of 1.1 million tonnes in 2024–2025. Global palm oil production is expected to increase from 76.6 million tonnes in 2022–2023 to an estimated 77.0 million tonnes in 2023–2024 and then to 79.6 million tonnes in 2024–2025.

There are two risks to our production forecast associated with the expected onset of La Niña in Q4 2024: above-average rainfall could increase output, while flooding and heavy rainfall could decrease it. In terms of demand, we anticipate that global palm oil consumption will increase from 74.3 million tonnes to an estimated 75.2 million tonnes in 2023–2024 and 78.5 million tonnes in 2024–2025.

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Source- businesstoday.com