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CIMB Securities believes crude palm oil (CPO) prices could be significantly affected by tariffs stemming from the US-China trade war, particularly against a backdrop of falling crude oil prices.
In a note issued on Monday, the firm said:
"Lower crude oil prices, if sustained, could reduce the viability of biodiesel blending programmes, putting downward pressure on CPO prices."
CIMB maintained its 2025 average CPO price forecast at 4,200 ringgit per tonne.
"We estimate that every 100 ringgit change in the price per tonne of CPO could affect 2025 earnings for the plantation companies under our coverage by between 3% and 7%," the firm added.
Despite the near-term risks, CIMB kept its positive rating on the sector, citing limited direct exposure to US tariffs, as well as the possibility of long-term structural supply issues that could be exacerbated by the tariffs.
The United States announced an immediate 10% tariff on palm oil imports, set to rise to 24% on Malaysian palm oil and 32% on Indonesian palm oil starting 9 April.
CIMB explained:
"These tariffs will raise the cost of palm oil for end-users in America. The increases are likely to push US food manufacturers and consumers to substitute palm oil with domestic alternatives such as soybean oil, benefiting American soybean farmers."
On the positive side, the United States is a relatively small consumer of palm oil, using just 1.9 million tonnes out of 78 million tonnes of global consumption, equivalent to around 2.4% of total global demand.
In 2024, Malaysia exported only 191,000 tonnes of palm oil to the United States, representing about 10% of US palm oil imports and just 1.1% of Malaysia's total palm oil exports.
CIMB added that "the tariff gap between Malaysia and Indonesia (8 percentage points) could give Malaysia a slight competitive edge in the US market at the expense of Indonesian producers, noting that the United States currently sources around 85% of its palm oil imports from Indonesia and 10% from Malaysia."
China's Ministry of Finance announced on Friday an additional 34% tariff on all US goods effective 10 April, on top of a previous 10% tariff imposed last month, in response to measures by US President Donald Trump.
Starting 10 April, US soybeans will face a 44% tariff, adding further pressure on American farmers, particularly as China accounted for about 52% of US soybean exports in 2024.
CIMB said:
"The new tariffs will price US soybeans out of the Chinese market, and China is likely to intensify purchases from Brazil, Argentina and other soybean-producing countries."
However, the note cautioned that reliance on these alternative markets could face logistical challenges that limit how quickly Chinese demand can be met.
While reduced soybean crushing activity in China could boost demand for palm oil as a substitute, CIMB warned this could lead to a shortage of domestic soybean oil supply in China.
The firm's analysts also noted that crude oil prices fell sharply by 13% to $66 per barrel (equivalent to $484 per tonne), which negatively affects biodiesel production, which relies heavily on vegetable oils such as palm oil and soybean oil.
The firm said:
"Lower fossil fuel prices make biodiesel relatively more expensive, increasing the financial burden on governments that subsidise biofuel blending programmes."
Source: Al Mal Forum