Fitch Ratings raises Malaysian CPO price forecast for 2025 and beyond

KUALA LUMPUR: Fitch Ratings has raised its 2025 and beyond assumptions for Malaysian crude palm oil (CPO) prices due to a slower rebound in Indonesia's yields and rising biodiesel consumption there.

The firm has raised its price assumptions to US$800 (RM3,578) per tonne (t) for 2025 and US$700 per tonne thereafter.

"We had earlier assumed an average price of US$750 per tonne in 2025 and US$650 per tonne thereafter."Our revised assumptions reflect a slower rebound in yields in Indonesia, the world's largest palm oil producer, and increasing biodiesel consumption in the country," it said in a note.

Despite the hike, Fitch Rating said its assumption implies that prices will weaken from 2024, due to better supply of palm oil and competition with soybean oil.

The firm has also revised up its longer-term price assumptions, based on cost inflation and its expectation of limited additions to oil palm acreage.

"Indonesia has slowed new permits for plantations, while some producers in Malaysia are selling acreage for alternative uses, such as property development. "However, palm oil yields should still rise over the long-term on better seeds and cultivation practices," it said. Moving forward, Fitch Ratings expects a rebound in CPO output in 2025, helped by a weak La Nina.

The firm said the mild conditions should improve fruit yields with better rainfall, without causing disruption from flooding.

"Weather forecasters predict La Nina will not last beyond the first quarter (Q1) 2025. This should limit the impact on output of rival soybean oil, as La Nina induces dry weather in South America's key soybean growing regions," it said. Apart from higher output, Fitch Rating also thinks CPO prices will be pressured in coming months by the divergent trend for substitute soybean oil.

"CPO prices currently are at a premium to soybean oil, instead of the usual discount. We think edible oil traders and manufacturers will reduce purchases of palm oil in favour of soybean oil."

"Additionally, Indonesia has mandated an increase in the share of palm oil-basedbiodiesel in diesel fuel to 40 per cent from January 2025 (B40), from 35 per cent (B35)."

"We estimate that the B40 directive will boost global palm oil consumption by one per cent to two per cent in 2025," it added. Ends