CY24-25 CPO price forecast kept at RM3,800, prices expected to moderate

KUCHING: While the average crude palm oil (CPO) price in March has jumped 7 per cent month on month (m-o-m) to RM4,216 per metric tonne (MT), analysts at Kenanga Investment Bank Bhd’s research arm (Kenanga Research) are still maintaining their calendar year 2024 to 2025 (CY24-25) CPO price forecast of RM3,800 as they expect palm oil prices to moderate downwards.

In a sector update report, the research arm pointed out that CPO prices have been rather robust with the first quarter of 2024 (1Q24) average prices sitting above their forecasts at RM3,983 per MT.

While palm oil prices have continued to come in above the RM4,000 mark since the end of February with the current April CPO average (April 1 to 15) sitting at RM4,430, Kenanga Research is opted to maintain their current average annual CPO forecasts as they are expecting prices to moderate due to firmer edible oil prices in the first half of the year (1H24), increased fresh fruit bunch (FFB) output in 2H24 and easing palm oil demand in 2Q24.

According to the research arm, edible oil prices are often firmer in 1H as majority of the global edible oil supply has harvest peaks in 3Q where prices will begin to trend weaker.

“Soya bean, which enjoys two major harvests -- 2Q from South America and 3Q from US -- may be a factor for less volatile intrayear soya bean oil prices while palm oil prices tend to suffer more pronounced swings.

“We attribute this partly to palm oil harvest dipping in 2Q and peaking in 3Q but also palm oil is heavily traded internationally hence various global factors, ranging from geopolitical tension to shipping disruption and unexpected changes in weather patterns can affect prices,” the research arm explained.

FFB production is also expected to improve in 2H as it is historically about 20 per cent higher than 1H harvest, the improving output is expected to weaken CPO prices.

Meanwhile, demand for palm oil in 2H24 is also expected to be softer as many time-sensitive buying periods such as the Indonesian election, Lunar New Year, Ramadan and Hari Raya are already behind us.

“Only the Indian election (19 Apr to May) remains outstanding at this juncture,” the research arm guided.

Nevertheless, demand for CPO is still expected to be supported due to growing global demand for biofuel.

On a positive note, Kenanga Research guides that planters should see better margins in 1Q24 as inputs such as fertiliser and energy prices have come down 20 to 40 per cent y-o-y while Malaysian FFB yield has been improving due to the return of foreign workers.

“Coupled with flattish CPO prices of RM3,800 per MT, easier upstream margins should be expected in 1Q24. Palm kernel (PK) prices which has been on the downtrend since mid-2022 may be bottoming out as well as the prices of palm kernel oil (PKO) has been rising m-o-m since Dec 2023,” said the research arm.

Kenanga Research explains that as palm kernel is a byproduct of palm oil, higher palm kernel prices can in turn help improve upstream margins as it would essentially help to lower the cost of producing CPO.

“However, downstream margins might stay soft in 1Q24 even though the worst might be over. Some oleochemical restocking seems to be taking place as sales volume is improving but on still flat prices.

“PKO, a key input for the oleochemical sector, which has seen higher m-o-m prices since December 2023 seem to reflect this volume uptick as well,” the research arm added.’