Palm oil price forecast: Will Indonesia flood global market after lifting export ban?

Palm oil prices retreat from 2022 highs

The palm oil market hit another new high in 2022, with the benchmark CPO price soaring to MYR8,163 per tonne on 1 March. The US market price reached a record of over $1,900 per tonne. The surge in prices was driven by a combination of uncertainty over the supply of sunflower seed oil from producers in Ukraine and Russia, a drought in Latin American reducing soybean output and Indonesia’s steps to limit palm oil exports as domestic food prices spiked.

The Malaysian CPO price retreated to MYR6,116 per tonne on 18 March, but moved back towards MYR7,000 per tonne in April and spiked to MYR7,757 per tonne on 27 April after the Indonesian government announced a ban on palm oil exports on 22 April effective from 28 April. Lower petroleum prices also made palm oil less attractive as a biofuel.

Indonesia was not expected to keep the ban in place over the summer, as palm oil is one of its major export products and it has limited storage capacity. The domestic market consumes only a third of its production.

Indonesia lifted the ban on 23 May, with excess inventories building up, sending the CPO price plunging from the MYR7,000 per tonne level to MYR4,688 per tonne by 22 June. The price bounced above MYR5,000 per tonne at the end of June, but dropped to MYR3,643 on 14 July, its lowest level since June 2021.

“Spot CPO price in Malaysia has fallen 30% to RM4,698/tonne since Indonesia removed its export ban on 23 May. The bulk, or 91%, of the price declines occurred since 10 Jun, after Indonesia provided more clarity on the export process as it replaced the export ban with the Domestic Market Obligation (DMO),” said Ivy Ng Lee Fang, analyst at financial service provider CGS-CIMB, in a client note on 5 July.

Palm oil price forecast: Will the market fall further or find support?

“We are of the view that to clear the excess stockpile, Indonesia’s palm producers will need to entice buyers by lowering CPO prices – causing local and international CPO prices to fall significantly in recent weeks. We think CPO prices could stay weak during the adjustment period and trade at larger discounts over competing edible oils until Indonesia’s palm oil stocks fall to the 4m-5m tonnes level. Meanwhile, we expect Malaysia’s palm oil stocks to rise due to competition fresia palm oil,” wrote CGS-CIMB analyst Fang in a palm oil price forecast note.

Maybank’s Ong also expects the market to remain under downward pressure, noting: “With bloated inventories in Indonesia, Malaysia’s palm oil will likely lose market share to Indonesia in the coming months resulting in gradual pick up in MPOB’s stockpile. Barring any unexpected weather anomaly (especially in Northern Hemisphere this July-Aug), we anticipate CPO price to remain under pressure in 3Q before recovering somewhat in 4Q.

“With relatively normal-to-good weather, oilseeds yield in the Northern Hemisphere may turn out strong in 2H22 (after 2 years of unfavourable weather and crop yield) and this will add pressure to CPO price as it will coincide with CPO’s seasonal peak output in 2H. Conversely, any unfavourable condition in the Northern Hemisphere will help sustain oilseed prices and limit CPO price downside.”

At the time of writing (26 July), the palm oil price forecast from Trading Economics saw the price falling further over the next year, trading down to MYR3,558.80 per tonne by the end of this quarter and MYR3,156.55 per tonne in 12 months’ time, based on global macro models and analysts’ expectations.

The latest palm oil price forecast for 2022 from Fitch Ratings showed the US crude oil futures price, which fell below $1,000 per tonne early this month, could continue to weaken in the second half of the year after averaging $1,500 per tonne in the first half.

But the long-term palm oil price forecast from algorithm-based prediction service Wallet Investor showed the US futures price rebounding. The website predicted that palm oil could trade by the end of the year at $1,113.70 per tonne and $1,532.43 by the end of 2023. Wallet Investor’s palm oil price forecast for 2025 estimated that the price could rise to $2,367.22 by the end of the year.

The World Bank, which issues commodity price forecasts twice a year in April and October, predicted in April that the palm oil price could average $1,650 per tonne in 2022, $1,400 in 2023 and $1,372 in 2024. Unlike in October when it forecast a price of $1,079 per tonne by the end of the decade, the World Bank did not issue a palm oil price forecast for 2030 in its April update.

When looking at any palm oil price forecast, it’s important to keep in mind that commodity markets are highly volatile, making it difficult for analysts and forecasters to come up with accurate predictions. Before making any investment, we recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money that you cannot afford to lose.

Article from Capital Com SV Investments