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Malaysian palm oil stocks are expected to fall 7% month-on-month to 1.48 million tonnes in February, as production continues to decline.
CIMB Securities said the drop in production is due to fewer working days in February compared with January.
It added that the heavy rainfall seen in January is likely to persist into February.
Crude palm oil (CPO) production and palm oil exports are both expected to fall 5% month-on-month in February, to 1.18 million tonnes and 1.1 million tonnes respectively.
The firm noted that "the current price spread between crude palm oil and soybean oil remains wide, which could push consumers towards cheaper alternatives."
Malaysian palm oil stocks at the end of January fell 7.5% month-on-month and 21.8% year-on-year to 1.58 million tonnes, their lowest level in 20 months.
The firm said the decline was driven by lower production, which outweighed the impact of higher imports and lower exports.
It added: "The stock level came in below our forecast of 1.73 million tonnes, and also below market estimates of between 1.65 million and 1.66 million tonnes."
The firm noted that new policies introduced by the United States could affect vegetable oil markets.
The imposition of a 25% import tariff on Canada could push up vegetable oil prices in the United States, given that Canada is currently the largest supplier of vegetable oils to the US. Restrictions on the use of imported used cooking oil as a feedstock for biofuel production in the United States could also increase the country's reliance on vegetable oil imports, which could be positive for palm oil.
Regarding Indonesia's adoption of the B40 biodiesel blend in the first quarter of 2025, the firm noted that the wide price gap between palm oil and gas oil, currently at $430 per tonne, could raise adoption costs, creating potential implementation risks due to funding issues in the fourth quarter of 2025.
The firm maintained its average crude palm oil price forecast at 4,200 Malaysian ringgit per tonne for 2025, and expects palm oil plantation companies to post better earnings in the fourth quarter of 2024, supported by higher crude palm oil prices and increased output from Indonesia.
It also kept its "Overweight" rating on the sector.
Source: Al Mal Forum