AVERAGE crude palm oil (CPO) prices will drop 23.1% year-on-year (yoy) to RM4,000/tonne in 2023, according to Fitch Solutions Country Risk and Industry Research.
It attributed the decline to the “ebbing impact of idiosyncratic events” that took place in the first half of 2022 (H1 2022) – such as the Russian invasion of Ukraine and the Indonesian ban on palm oil exports – and continued declining fuel prices.
“We forecast that the average annual palm oil price in 2023 will be RM4,000 per metric tonne (no change to our previous forecast) and that palm oil prices will average RM3,033/MT in 2024-2026,” Fitch Solutions said in a recent outlook report for palm oil prices.
Fitch Solutions also expects CPO prices to drop further to RM3,033/MT between 2024 and 2026 as consistent annual surpluses weigh further on prices.
“Nevertheless, we highlight that the eventual transformation of the Indonesian and Malaysian palm oil industries from reliance on extensive production growth to intensive, yield-driven growth, is uncertain, and poses an upside risk to our price forecasts.”
Based on its palm oil production and consumption forecasts from 2021/22 and 2025/26, Fitch Solutions believes the global palm oil market will generate an annual production surplus through 2026, rising from 2.5 mil MT in 2022 and 2023 to 3.9 mil MT in 2026.
“Of the 12.7 mil MT of additional products that we expect the global palm oil industry to produce in 2025/26 (with respect to the 2021/22 output), we forecast that more than four-fifths (10.5 mil MT) will be produced in Indonesia and Malaysia, which accounted for 83% of global production in 2021/22,” it added.
“Indeed, and for the first time, we expect Indonesia’s share of global palm oil production to surpass three-fifths in 2025/26 (at 60.1%), largely at the expense of the Malaysian output share, which we see declining by 0.9% over our five-year forecast period.”
“Unchanged forecast for rest of the year”
As for the rest of 2022, Fitch Solutions said its average price forecast for palm oil remains unchanged at RM5,200/MT, a slight recovery from significant year-to-date (YTD) declines seen in July and earlier this month.
It pointed to an “unwinding price-led demand destruction” as a result of vegetable oil importers in major consuming nations like India and China resuming or increasing foreign purchases of palm oil (after having sourced alternative cooking oils earlier in 2022).
Furthermore, Indonesian palm oil inventories are starting to decline – or, at least, accumulate at a slower rate, it said.
“We do not see a return to the historically elevated price levels evident in H122, in no small part as we do not expect Indonesia to reintroduce its short-lived palm oil export ban of the second quarter of the year (Q2 2022),” Fitch Solutions added.
Between Jan 1 and Aug 15, 2022, the price of palm oil averaged RM5,491/MT, reaching a high of RM7,104/MT on April 29 and touching a low of RM3,568/MT on July 14.
On a quarterly basis, palm oil prices peaked in Q2 2022 in response to the withdrawal of Ukrainian sunflower seed oil exports from the international trade market and the consequent Indonesian palm oil export ban, during which prices averaged at RM6,021/MT.
On Aug 15, palm oil prices closed at RM4,125/MT, having staged a limited rally after the July 14 low.
“In line with our annual average price forecast of RM5,200/MT, we see an average palm oil price slightly in excess of RM4,750/MT for the rest of 2022,” Fitch Solutions said. – Aug 22, 2022
Main pic credit: AFP
