Malaysia's CPO spot prices likely to average lower in 2024

KUALA LUMPUR: Fitch Ratings expects Malaysian benchmark crude palm oil (CPO) spot prices to average at US$650 per tonne in 2024, substantially lower than circa-US$840 per tonne in 2023 due to higher supply.

It said prices have declined to below US$800 per tonne in December 2023, after strengthening in November on market concerns that the El Nino climate pattern would have a major impact on global vegetable oil supply.

"We think weather conditions would not deteriorate materially next year, based on the latest rainfall trend and weather forecasts," it said in a Non-Rating Action Commentary report titled 'Asian Crude Palm Oil Monitor for the fourth quarter of 2023 (4Q 2023)'.

Fitch Ratings said Malaysia’s CPO output appears to be recovering strongly, with production in October and November 2023 at the highest levels for the corresponding months since 2018.

It noted that Sime Darby Plantation (SDP) -- the world’s largest oil palm plantation group by planted area -- said that its workforce in peninsular Malaysia has returned to pre-pandemic strength, and labour availability in Sabah and Sarawak should normalise soon.

"Adequate manpower, along with favourable weather conditions, should allow Malaysian producers to improve yields in the next few months.

"Output figures in Indonesia have been tepid after reaching a high in May 2023, however, we think the lull is temporary, and production should grow healthily over the next year," it said.

Meanwhile, palm oil inventories in Malaysia were up six per cent year-on-year (y-o-y) as of November 2023 and at the highest level for the month since 2018.

In comparison, inventories in Indonesia were 23 per cent lower y-o-y as of September 2023, based on the latest available data.

"We think lower stocks in Indonesia can be attributed to healthy exports over the last year, along with robust domestic demand from biodiesel and production weakness in the last couple of months.

"We expect stocks in Malaysia and Indonesia to increase along with palm oil production," said Fitch Ratings.

Meanwhile, export volumes from Malaysia and Indonesia have been lower y-o-y since August 2023, it said, believing that competition from other vegetable oils and buyer expectations of a further fall in CPO prices have played a part in the export trend.

The credit rating agency added that it expects pressure on export volumes to continue in the short term. - Bernama