KUALA LUMPUR: Palm oil prices are expected to remain high, averaging RM4,600 per metric tonne (MT) in 2025 as supply constraints continue with seasonal production declines, and reduced inventories, MARC Ratings said.
The estimation is higher than RM4,200 in 2024 and RM3,812 in 2023. The rating agency said the palm oil prices in 2024 have remained elevated due to global supply constraints, driven by reduced exports from the largest palm oil producer, Indonesia, as well as recent adverse weather conditions in Malaysia.
It expects the palm oil market to continue to face significant uncertainties heading into 2025, with supply-side challenges intensified by adverse weather conditions and a slower pace of replanting.
"Palm oil prices are expected to face upward pressure in the near term due to supply constraints, seasonal production declines, and reduced inventories."
"Production typically peaks in September or October before tapering off in the first quarter of the following year. "On the demand side, biodiesel mandates, rising edible oil consumption, and geopolitical factors impacting substitute oils are likely to support prices," it said in a statement.
According to MARC, global edible oil demand remains an important factor, as palm oil is usually a cost-effective alternative to other vegetable oils and also a key feedstock for processed foods.
It noted that the global import volume of palm oil is forecast to rise to around 44.6 million MT in 2025, while domestic consumption is projected to reach 78.3 million MT.
"Based on current prices, palm oil is positioned higher than substitutes such as soybean oil and sunflower oil, which may constrain demand growth.
"Meanwhile, price effects caused by regulatory changes, such as India's hike in edible oil customs duties and the delayed implementation of the European Union Deforestation Regulation (EUDR) to 2026, are expected to balance out," it added.
As oil palm is a weather-sensitive crop, MARC said palm oil production will face constraints due to persistent wet weather conditions, which have led to flooding in key production states.
It stated that the Malaysian Meteorological Department forecasts that this high rainfall trend will continue at least through the first quarter of 2025, with a potential for La Niña weather conditions. "However, as weather conditions normalise in the latter half of the year, drier weather could improve growth and harvesting conditions, though its full impact on production may only be realised in 2026," it said.