Analysis: Tight but manageable edible oil market to sustain 2024 CPO prices at RM3,800 level

KUCHING: Crude Palm Oil (CPO) prices are expected to average at around RM3,800 per metric tonne (MT) in 2024 as the edible oil market stays tight but manageable.

In a sector update, analysts at Kenanga Investment Bank Bhd (Kenanga Research) are anticipating 2024’s edible oil supply to remain tight but manageable in 2024 and global demand continues to slightly outpace expected production levels.

They highlighted that current second quarter of 2024 (2Q24) edible oil prices will hinge on South American soyabean harvests which they forecast may end rather uneventful with Brazil harvesting around 150 million MT of soyabean and Argentina harvesting another circa 40 million MT.

“Coupled with flattish production outlook for palm oil due to a decline in new planting and falling yields due to ageing trees, 2024 edible oil supply should just about able to meet demand growth with the possibility of a small supply shortfall,” said Kenanga Research.

The analyst added that global demand for palm oil is also expected to stay robust as Indonesia, the top palm oil producer and consumer will be prioritising its domestic availability over exports until mid-April when the Hari Raya season ends.

Meanwhile, India, another top palm oil consumer is also likely to maintain robust levels of inventory pending an election in 2Q24

For production, Kenanga Research is expecting flattish year on year (y-o-y) output with potential modest improvement in Malaysia.

That said, Malaysian palm oil output in February 2024 was observed to have missed expectations despite the additional working day from the leap year as it was 5 per cent below consensus estimates.

Output during the month fell by 10 per cent month on month (m-o-m) but grew marginally by 0.5 per cent year on year (y-o-y) to 1.260 million MT.

That said, February’s closing inventory of 1.919 million MT which fell 5 per cent m-o-m and 9 per cent y-o-y was within consensus expectations as exports during the month also disappointed.

February palm oil exports was 10 per cent below market consensus estimates as it fell 25 per cent m-o-m and 10 per cent y-o-y to 1.016 million MT.

On the flipside, this was partially offset by increased domestic usage of 0.377 million MT from the festive season, translating to growths of 7 per cent m-o-m and 16 per cent y-oy.

On a separate note, margins for planters are expected to see improvement with lower input costs as year to date (YTD) fertiliser and energy prices in 2024 are now 20 to 40 per cent below 2023 levels.