KUALA LUMPUR: Crude palm oil (CPO) price will likely stay high at least until the first quarter of 2025, given the potentially low inventory by end-2024 and higher demand next year, industry observers said.
CPO hit a two-year high of RM4,693 per tonne on Oct 28, from a low of RM3,860 in mid-August. It appreciated 29 per cent in ringgit terms and 36 per cent in US dollar terms so far this year.
In comparison, soybean oil (SBO) price declined by 14 per cent year-to-date.
CPO is trading at a premium to SBO so far this year, CGS International Research remarked.
Economic analyst Dr Zulkufli Zakaria expects the price of CPO to remain high or increase a bit further into early 2025, particularly as Indonesia faces disruptive weather affecting its production,
He added that weather instability has led to more disruptive conditions in major CPO-producing countries like Malaysia and Indonesia, significantly impacting production levels and causing shortages.
"Indonesia's CPO production saw a decline in 2024, falling from 2.28 million tonnes in 2023 to 1.79 million tonness by September 2024.
"In contrast, soybean prices are declining due to abundant supply, as American and Brazilian producers have increased acreage and are experiencing higher yields," Zulkufli told Business Times.
Adding to the pressure on CPO availability, he said Indonesia has launched the 35 per cent blend of palm oil-based fuel in biodiesel (B35 biodiesel program), which mandates a 35 per cent blend of palm oil in diesel.
"This policy alone drives up local consumption, limiting the supply available for export. Malaysia has also raised its own biodiesel mandate, aiming to support both its palm oil industry and its renewable energy targets.
"I believe Indonesia will still maintain its B35 programme not only to reduce the global warming but for its own economic sustainability either domestically and internationally," he said.
CGS International reckons that CPO will be trading higher in the first half of 2025 (1H25), especially in 1Q25, expecting it to trade at RM4,100–RM4,500 per tonne.
Nevertheless, the firm maintained its CPO price forecast at RM4,000 per tonne for 2024 and 2025.
"This is due to declining inventory levels for CPO towards end-2024, limited vegoil supply in the market, higher demand during festive seasons in 1Q25 (Chinese New Year and Ramadan) and implementation of Indonesia's B40 mandate which may take up additional volume," it said.
CGS International expects most plantation companies to report further sequential net profit improvements in the upcoming Q3 2024 results and strong year-on-year growth.
This will be driven by peak production in Q3 2024 as well as stable CPO prices.
While it is "Neutral'on the sector, given that downstream operations of integrated companies such as Kuala Lumpur Kepong Bhd and IOI Corp Bhd remain challenging, the firm encourages investors to actively focus on the potential for positive earnings surprises and higher dividend payouts from mid-size upstream players.
"We prefer pure Malaysia upstream players to leverage the high CPO prices and good production growth. Our top picks are Hap Seng Consolidated Bhd and Ta Ann Holdings Bhd," it said.