FITCH Solutions Country Risk & Industry Research has again revised “significantly” upward its crude palm oil (CPO) price forecast for a fourth consecutive quarter as the market remains very tight.
“Prices have sky-rocketed in recent months, breaching the all-time highs reached in 2008. We now expect prices to average RM4,200/tonne in 2021 compared with a previous forecast at RM3,800/tonne,” projected the research house which is independent of Fitch Ratings.
“We have also revised up our 2022 forecast but continue to expect prices to correct significantly next year, averaging RM3,400/tonne from a previous forecast at RM3,200/tonne.”
For the short term, Fitch Solutions expects the market to remain very tight in 4Q 2021 and into 1Q 2022 as it sees no immediate relief to severe labour shortages at plantations in Malaysia while import demand remains strong as alternative edible oils prices have also spiked up.
In 2022, the research house forecasts production conditions to improve as Malaysia is likely to ease some migrant labour travel restrictions as vaccination levels progress in the country but noted that this would take time to impact production.
“High palm oil prices should start to bite into demand and we believe the outlook for consumption in 2022 has deteriorated somehow in recent months,” observed Fitch Solutions.
“We see global consumption growth slowing down in 2022 to 2.7% year-on-year (yoy) compared with our forecast back in August of a 3.4% growth in consumption in 2022, and the 3.4% growth expected this year. In particular, we have revised down our India’s palm oil consumption forecast.”
In the longer term, Fitch Solutions foresees prices remaining below 2021 levels out to 2025 (though still higher than 2015-2019 averages).
“Although palm oil production will slow down significantly in the coming years, we expect demand growth to underwhelm in China, India and the EU (European Union),” projected the research house.
Meanwhile, there are uncertainties surrounding the steady increase in biodiesel blending in Indonesia. The country has carried on relatively successfully with its ambitious biodiesel programme, increasing blending mandates at a rapid pace.
It remains to be seen whether the authorities will be able to boost blending beyond B40, and if the pace of such increases can be maintained.
“We note that consumption growth is concentrated in a very limited number of markets which makes the demand story vulnerable to change should the biodiesel or Indian oilseed market context turn,” opined Fitch Solutions.
“As a result, our base case for now is for prices to remain relatively contained on a five-year horizon.” – Oct 29, 2021
