KUALA LUMPUR: Fitch Ratings expects Malaysian benchmark crude palm oil (CPO) spot prices to average US$650 per tonne (t) in 2024, substantially lower than around US$840/t in 2023, on higher supply.
The benchmark spot price for crude palm oil (CPO) in Malaysia fell below US$800 per tonne in December 2023, following a surge in November due to market apprehensions that the El Nino climate pattern would significantly affect the world's supply of vegetable oil.
Fitch Rating said the market sees a risk of a large drop in palm oil output due to the ongoing El Nino climate pattern, which causes drier weather in Indonesia and Malaysia.
However, the rating agency thinks the impact is unlikely to be material based on the substantial rainfall seen in the region over the last month and the forecast by the US weather service of a 60 per cent chance of dissipation of El Nino conditions by June 2024.
"We think weather conditions will not deteriorate materially next year, based on the latest rainfall trend and weather forecasts.
It said that the United States Department of Agriculture (USDA) forecasts global production of major vegetable oils to increase by 3.0 per cent in the 2023–2024 marketing year (MY24), driven by growth in soybean oil and palm oil output.
This follows a 5.0 per cent jump in output in MY23, it said.
"Nonetheless, meteorologists see a risk of a very strong El Nino in the next few months, which may lead to flooding-related disruptions to soybean output in South America and support CPO prices," it said.
On production, Fitch Rating said palm oil production in Indonesia and Malaysia rose by around 8.0 per cent in the first half of 2023.
It expects the trend toward higher output to continue, at least until the first half of 2024.
"Labour availability in Malaysia is close to normalisation. Latest data for Indonesia shows a year-over-year drop in output in August and September, but we think it was a blip due to dry weather, and production will rise in the coming months," it added.