Lang
Rising output and delays in rolling out Indonesia's biodiesel mandates could weaken palm oil prices after the first quarter of 2025, analysts say, even as the latest data show stocks falling to a 19-month low.
Crude palm oil (CPO) prices could come under pressure as production begins to recover in the second quarter, according to a report by TA Securities. Record soybean supplies will also weigh on palm oil prices, with Brazil and Argentina's export season typically starting in February and continuing throughout the year, the firm noted.
TA Securities said palm oil production would see "a gradual recovery and an upward trend for the rest of the year." By the end of 2025, output could reach 20 million tonnes, supported by improved weather conditions and greater labour availability.
The firm expects crude palm oil to average RM3,800 per tonne this year.
Prices of the versatile vegetable oil, used in everything from lipstick to biofuel, rose 20% last year, driven by supply concerns and rising stockpiles. The benchmark third-month delivery contract was traded at RM4,482 on Monday.
The report noted that crude palm oil prices currently trade at a premium to rival soybean oil, despite a record global production season, compared with average discounts of US$293 over the past three years and US$220 over the past five years.
In addition, a widening price gap between palm oil and gas oil, coupled with operational challenges and implementation costs, could delay or slow the rollout of Indonesia's B40 biodiesel programme, BIMB Securities warned.
The firm said Indonesia's implementation of the B40 programme — which mandates a blend of 40% palm oil with 60% diesel — could be phased in gradually rather than rolled out in full at once. BIMB Securities also expects crude palm oil prices to trend lower from the second quarter onward, ranging between RM3,500 and RM4,500 per tonne for the remainder of 2025.
Exports And Stocks
December exports fell by nearly 10% to a six-month low of 1.34 million tonnes, attributed to uncompetitive palm oil prices and the oil's tendency to solidify during winter, which complicates storage and consumption, according to a report by Public Investment Bank.
Meanwhile, production declined due to flooding. Stocks in Malaysia, the world's second-largest palm oil producer after Indonesia, shrank to 1.71 million tonnes in December, according to Malaysian Palm Oil Board (MPOB) data.
CIMB Securities expects exports to fall by a further 16% month-on-month in January, as the price gap between palm oil and soybean and rapeseed oils pushes buyers toward cheaper alternatives. It also noted that uncertainty over US biodiesel policy could keep soybean oil prices weak.
Hong Leong Investment Bank expects stocks to continue declining through January 2025, driven by weak seasonal winter exports and prices that remain uncompetitive against other oils.
Source: The Edge