FITCH Solutions Country Risk & Industry Research has revised upwards its 2021 palm oil price forecast significantly to RM3,400/tonne from RM3,050/tonne previously as it expects the market to remain tight while prices of alternative oilseeds remain elevated.
The above forecast assumes an average of about RM3,270/tonne over the rest of the year compared with spot prices of RM4,012/tonne, according to the research house.
“Supply has been coming in below expectations in Malaysia in 1Q 2021 due to labour shortages aggravated by COVID-19 which is keeping stocks at multi-year lows,” observed Fitch Solutions (which is independent of Fitch Ratings) in a research note.
“Meanwhile, palm oil import demand is recovering in many different markets as economies reopen.”
However, the research house remains bearish on prices from current levels on a six month-horizon and continues to see prices averaging lower in 2022 although it has also revised its forecast higher to RM2,900/tonne from RM2,600/tonne previously.
“Our core view is that prices will not surpass their 2008 record high for now as production will improve in the coming months,” opined Fitch Solutions.
“India’s import demand could also taper off in the near term given the ongoing large wave of COVID-19 infections and the very elevated vegetable oil prices in the country, both of which will weigh on domestic demand (see below for more details).”
On its longer term outlook, the research house noted that it foresees prices remaining below 2021 levels out to 2025 (which is 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 Fitch Solutions.
“Meanwhile, there are uncertainties surrounding the steady increase in biodiesel blending in Indonesia.”
Although the country has carried on relatively successfully with its ambitious biodiesel programme – increasingly at a rapid pace blending mandates – it remains to be seen whether the authorities will be able to boost blending beyond B40 as well as the pace of such increases.
“We note that large sources of growth for consumption are 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 the research house.
“As a result, our base case for now is for prices to remain relatively contained on a five-year horizon.” – Aug 6, 2021
