KUALA LUMPUR: The palm oil market is expected to show a slightly positive price trend going into 2024, according to MARC Rating.
The rating agency said crude palm oil futures prices for the remainder of the year and into 2024 are projected to range between RM3,700 per tonne and RM4,100 per tonnes.
"The edible oils market is currently recovering from the substantial selling pressures witnessed in sunflower oil over the past few months.
"Seasonal production trends, hotter climate conditions, and increasing demand for biofuels are expected to exert upward pressure on palm oil prices," it said in a statment.
Prices of edible oils have been volatile over the past couple of years driven by a combination of factors, including export restrictions, labour shortages, and the Russia-Ukraine conflict, resulting in a lower supply of edible oils.
In the near term, MARC Rating said supply constraints are expected to drive up palm oil prices.
Typically, it said palm oil production declines after peaking in September or October, with the first quarter of the year having the lowest output.
"This seasonal trend of lower production will reduce palm oil inventories, exerting upward pressure on prices, especially in the first quarter (Q1) 2024," it said.
Furthermore, MARC said El Niño's hotter and drier weather conditions in Southeast Asia have impacted Indonesia, the largest palm oil producer.
With El Niño's impact on palm oil production typically seen at least a year later, it said production is expected to be reduced in 2H2024.
Additionally, MARC said in the major palm oil-producing countries Malaysia and Indonesia, a stagnation in oil palm plantation area growth, shrinking areas of immature oil palm plantations, and unproductive mature trees will impede overall production growth.
On the demand side, it said usage of biodiesel will be a driving factor.
"With the ongoing El Niño weather conditions, seasonal effects, and pricing differentials, crude palm oil prices are expected to trend slightly upwards in the near term.
"There are positive upside risks that may lead to prices being maintained above RM4,000 per tonnes such as lower-than-expected soybean and sunflower seed production, as well as the technical convergence between palm oil and soybean prices which will narrow the discount gap," it added.