Lang
Crude palm oil production is expected to continue declining in the coming months because of the ongoing monsoon season and the usual seasonal decrease in output, according to analysts.
Malaysian palm oil stocks fell by 2.6% month on month to 1.84 million tonnes in November 2024. This was slightly above the expected estimate of 1.8 million tonnes but in line with CIMB Securities’ forecast.
However, production challenges caused by severe flooding in key areas may push December stocks down by another 7% to 1.7 million tonnes. According to CIMB estimates, crude palm oil production is also expected to fall by 13% month on month in December to 1.41 million tonnes.
Although limited supply supports crude palm oil prices, analysts expect the price reaction to be neutral to negative because inventories were higher than expected and because of the current price spread compared with competing vegetable oils.
The research firm noted that the benchmark price spread between palm oil and soybean oil, at $147 per tonne, and rapeseed oil, at $87 per tonne, is likely to push buyers toward cheaper alternatives, negatively affecting crude palm oil exports in the coming months.
CIMB Securities maintained its overweight rating on the sector and kept its average crude palm oil price forecasts at RM4,150 per tonne for 2024 and RM4,200 per tonne for 2025.
By contrast, BIMB Securities reiterated its neutral rating on the sector, saying high crude palm oil prices are unlikely to be sustained over the long term.
Although crude palm oil prices are expected to remain high in the first quarter of calendar year 2025 because of lower production and higher demand, BIMB said prices are expected to start easing from the second quarter of 2025. The firm maintained its average crude palm oil price forecast at RM4,100 per tonne for both 2024 and 2025.
The expected decline is attributed to the seasonal increase in palm oil production, abundant global soybean supplies, a wider price gap between palm oil and other vegetable oils, and weaker export competitiveness due to the stronger ringgit against the US dollar.
Among the market players with buy recommendations from BIMB are Hap Seng Plantations Holdings, Sarawak Plantation, and IOI Corporation Bhd, which are expected to benefit from higher crude palm oil prices.
Looking ahead, CIMB said it expects plantation companies to deliver stable to stronger earnings in the fourth quarter of 2024 and in 2025, supported by higher crude palm oil prices and increased Indonesian production.
However, BIMB warned of potential risks, including adverse weather. Heavy and persistent rains could disrupt crops and reduce production, while stronger-than-expected demand and tighter global supply could emerge if Indonesia imposes a longer palm oil export ban to prioritize domestic consumption.