KUALA LUMPUR: BMI Research has raised the Bursa Malaysia-listed three-month crude palm oil futures contracts in 2024 and 2025 by at least five per cent on tighter supplies.
The firm raised their forecasts from PM3,850 per tonne to RM4,050 per tonne for 2024, and from RM3,650 per tonne to RM3,900 per tonne for 2025.
Through Nov 4, 2024, palm oil contracts traded at an average price of RM3,990 per tonne, an increase from the year-to-date (YTD) average of RM3,952 per tonne.
"Indeed, up to the end of September, the YTD average palm oil price was RM3,937 per tonne, since robust price development has added an incremental RM53 per tonne to the YTD average."Contracts climbed to RM4,891 per tonne at the November 04 close, their highest end-of-session price since June 30, 2022."
Between October 01, at which time the palm oil price was RM3,995 per tonne, and November 04, accumulated price increases amounted to 22.1 per cent.
Concerns about reduced production in Indonesia and Malaysia and an expected draw down of inventories have underpinned much of palm oil's recent price
strength. Price strength across the wider edible oils complex has also contributed to the recent upward momentum in the palm oil market.
"In the same period, the USD/MYR exchange rate rose from 4.1215 to 4.3760, equivalent to a 6.2 per cent depreciation of the Malaysian ringgit, which contributed to palm oil price action," it added.
BMI Research expects palm oil prices will remain
elevated through end-2024 and into 2025, but that further upside is limited.
The furst said in the short term, the seasonal decline in palm oil import demand during the northern hemisphere winter will slow upward momentum, and with Diwali in India now over, festival-related import demand is expected to ease.
"We note, however, that market sentiment will remain sensitive to supplies in Indonesia and Malaysia."In this light, the anticipated onset of La Niña conditions in the fourth quarter (4Q24) could see an improvement in production expectations in both markets."
In addition, current projections point to a La Niña event of mild strength, which should minimise the risks that are supportive above-average rainfall transitions into excess rainfall and flooding," the report added.
BMI said palm oil price development is expected to face headwinds in the first quarter of 2025 (1Q25) on account of the rare price premium that palm oil has established over soybean oil since the start of September.
"While palm oil demand in the food processing sector is expected to remain inelastic in the near term (due to palm oil's particular functional specifications), edible oil substitution at the household level could occur.
"The Solvent Extractors' Association (SEA) of India estimates that palm oil imports in 2023/24 will amount to 9.2 million tonnes compared to 9.8 million tonnes in 2022/23 and have identified price-driven edible oil substitution as one factor weighing on demand," it added.