Palm oil prices in 2024, not too different from 2023

IN 2022, the Russia-Ukraine war caused a global sunflower oil supply shortage which led to palm oil or crude palm oil (CPO) prices surging to an annual record high average of RM5,125.62 per metric tonne (MT).

Since then, the shortages have eased and caused CPO prices to mellow significantly in the subsequent year as it trended lower back down to an average of RM3,829.45 in 2023.

For the year ahead, industry analysts had mostly been divided on whether CPO prices will end up continuing to trend lower to below RM3,200 to RM3,500 mark or make a reversal and trend higher past the RM4,000 bench mark and potentially upwards to RM4,200 levels.

Initial reports issued early in the year or late in 2023 painted a very conflicting picture as less optimistic analysts expected CPO prices to follow its downward trend in 2023 to hit averages of around RM3,100 to RM3,200 in the new year due to expectations of large soybean harvests in the Americas and weaker demand from China.

In contrast, more optimistic analysts expected CPO prices in 2024 to improve to around RM4,000 to RM4,400 as they expected the El Nino phenomenon, sustained challenging outlook of global edible oil supply as well as lower palm oil harvests to positively affect CPO prices.

However, as time has gone on with more clarity shed on the factors affecting CPO prices, several analysts have begun revising their previous forecasts to more middle of the road forecasts.

For example, BMI Country Risk & Industry Research (BMI), a product of Fitch Solutions Group Ltd, has recently 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 from RM3,515 per tonne previously.

In a statement, BMI said that their upwards revision reflects the persistence CPO price strength that began in the third quarter of 2023 (3Q23) which saw contracts rising by 23.2 per cent between the start of June and the start of September.

At the same time, BMI said palm oil prices have also more or less traded within five per cent of RM3,851 per MT since mid2022. Year to date (YTD), Malaysia’s palm oil futures (FCPO) has grown by 9.3 per cent from its opening of RM3,633 per MT on Jan 2 to its closing of RM3,971 per MT on Feb 21.

Meanwhile, analysts at Maybank Investment Bank Bhd (Maybank IB Research) and MIDF Amanah Investment Bank Bhd (MIDF Research) have guided that while CPO prices in January were largely flattish, CPO prices in February and March are expected to end up trending higher than RM4,000 per MT to upwards of nearly RM4,500 per MT.

The rally in CPO prices are not expected to last however, as they forecast prices to trend downwards and end up annual averages of RM3,600 to RM3,700 per MT.

Overall, there is still much debate over where CPO prices may end up in 2024 but consensus forecasts are suggesting that improving global edible oil supplies from a milderthan-expected El Nino and an anticipated reduction of palm oil exports from Indonesia will results in a slight contraction or growth in annual palm oil prices.