KUALA LUMPUR: The Malaysian Palm Oil Council (MPOC) expects crude palm oil prices to trade lower in January to between RM3,600 and RM3,850 per tonne, despite projecting a higher average for 2024, at RM4,000 per tonne.
It said in a statement today, January performance will be influenced by lukewarm demand from key importing countries and price competition from sunflower and rapeseed oil.
In December, the price premium of sunflower and rapeseed oil over palm oil in the European market is only USD3 and USD39 respectively, owing to unusually high world crushing of sunflower seed and rapeseed in recent months.
January and February are seasonally low-export months in Malaysia, with exports in January and February 2023 at 1.13 and 1.12 million tonnes, respectively.
In December, MPOC said Malaysia palm oil stocks declined 4.64 per cent to 2.29 million tonnes, reaching their lowest level in three months, in line with the trend in palm oil production.
The onset of El Nino has boosted Malaysia's palm oil production in the final quarter of 2023.
Palm oil production in the fourth quarter has surged to its highest level since 2018, risen by 0.16 million tonnes, increasing from 5.11 to 5.27 million tonnes, in comparison to the corresponding period in 2022.
The production trend observed in the fourth quarter of 2023 is expected to persist into the first quarter of 2024. Therefore, it is projected that Malaysian palm oil production in 2024 will see a growth of one per cent, reaching approximately 18.75 million tonnes.
"In 2024, the palm oil price outlook remains optimistic, with an expected average trading price of RM4,000. This positive projection is rooted in the shifting supply and demand dynamics in Indonesia, moving towards a negative growth pattern following the implementation of B35 in August 2023," MPOC said in its statement.
Meanwhile, RHB research expects CPO prices to range higher from current levels to above RM4,000/tonne in the first half of 2024 (1H24), on seasonally low output and the impact of El Nino.
Lacklustre demand however will limit the upside for prices, leaving it to maintain its RM3,900/tonne price assumption for 2024.
"Our base case is a moderate El Nino, which in previous years has led to a two to seven per cent decline in palm oil (PO) production. "Should the El Nino become a strong one, we would need to relook at our price assumptions," RHB research said.
It expects stock levels to continue decreasing in the months ahead, on the back of a lower output season and higher demand related to festive seasons.
"Meanwhile, palm oil stock levels at most major importing countries are now above historical levels, providing less incentive for significant restocking activities, given fragile global demand on the back of weak economic sentiment.
"Also, competition with Indonesian palm oil remains intense, resulting in Malaysian palm oil losing market share," it noted.
As such, RHB Research has maintained its 'Neutral' rating on the plantation sector with a tactically positive trading strategy.
The firm continues to prefer upstream players for now, with top picks being Ta Ann Holdings Bhd and Sarawak Oil Palms Bhd in Malaysia, Bumitama Agri (BAL) and Golden Agri (GGR) in Singapore, and PP London Sumatra Indonesia (LSIP) in Indonesia.