KUALA LUMPUR: Fitch Ratings expects higher global vegetable oil output to drive a decline in crude palm oil (CPO) prices.
Fitch expects CPO price to be below US$1,000 (about RM4,399) per tonne in the second half of 2022 (2H22) after averaging at around US$1,500 per tonne in 1H22.
"The CPO prices have dropped by over US$300 per tonne since early June following a policy shift in Indonesia to encourage exports by reducing export levies. We expect continued output growth in Indonesia to exert further pressure on prices," it said in a note.
Fitch said the US Department of Agriculture (USDA) had forecast that global vegetable oil output would rise by 11 million tonnes in 2022-2023, outpacing consumption growth of seven million tonnes.
The forecast bakes in flattish sunflower seed oil production, with key producer – Ukraine – relying on transport to the European Union (EU) by rail or trucking and barging to Black Sea ports in Romania for its exports.
"However, market expectations for sunflower seed and overall vegetable oil supply may be revised down due to further impacts from the Russia-Ukraine war, which would support CPO prices," it said.
Indonesia's palm oil production rose by nine per cent in the first quarter (Q1) 2022, but CPO production in Malaysia was flat in the first five months of 2022.
The global palm oil output is forecast to jump by eight per cent over 2022-2023, after a flat 2021, according to the USDA.
Fitch expects the bulk of the growth to come from Indonesia, with Malaysian output in 2022 likely to be affected by persistent labour shortages.
"Malaysia's plans to bring in 32,000 foreign workers, approved in September 2021, continue to face delays. We believe labour shortages will continue for up to another six months. However, the situation should be resolved by early 2023 unless there is another major Covid-19 outbreak and border restrictions are re-imposed," it added.