BMI, a Fitch Solutions company, said palm oil prices will decrease between 2025 and 2027 and slide to RM2,200 per tonne, said.
In a report last Friday (May 19), BMI said it is keeping its average annual price forecasts for palm oil, maintaining that third-month palm oil futures will trade at a mean value of RM3,800 per tonne through 2023 before easing to an average level of RM3,400 per tonne through 2024.
BMI said that on a year-to-date (YTD) basis, prices have averaged RM3,872 per tonne through 2023, having fallen by almost one fifth between the end of 2022 and the time of writing.
“In the immediate term, it is our view that the risks to our outlook are weighted towards the downside in view of soft import demand from Mainland China and India as well as expectations that the global soybean harvest in 2023/24 will touch record highs.
“Since the end of 2022, the soy-to-palm oil price premium has fallen by almost two fifths, declining from US$462 per tonne to US$286 per tonne as of May 17, 2023,” it said.
BMI said that through the remainder of 2023, it highlights the widely expected onset of El Niño conditions during the second half of 2023 (2H2023) as posing an upside risk to its price forecast.
“It remains our view that palm oil prices will soften between 2025 and 2027, over which time we expect that mean annual prices will slide from RM3,000 per tonne to RM2,200 per tonne.
“This view is underpinned by our belief that the global palm oil production surplus will widen during this period, from 0.7 million tonnes in 2023/24 to 1.9 million tonnes by 2026/27,” it said.
BMI said between January and March, China imported one million tonnes of palm oil (and palm oil fractions), which represents a considerable pick-up on the volume imported during the same period in 2022, which was assessed at 0.3 million tonnes, but somewhat below the volume imported over the same period in 2019 (ie before the onset of the Covid-19 pandemic), which stood at 1.3 million tonnes, per China’s General Administration of Customs data.
“Our Country Risk team highlight that, after a strong start to 2023, China’s economic recovery remains uneven and note that recent high-frequency indicator prints, including industrial production and retail sales, have underperformed consensus expectations, despite posting robust year-on-year gains,” it said.
Associated with below-average rainfall over much of Southeast Asia, the last major El Niño resulted in a 6% year-on-year (y-o-y) fall in palm oil output from Indonesia and Malaysia in 2015/16, the research outfit said.
“A fall of 6.1% y-o-y in production from the same two producers in 1997/98 also coincides with a relatively potent El Niño, as evaluated using the Oceanic Niño Index.
“At present, the US Climate Prediction Centre considers the likelihood of El Niño conditions becoming active between May and July 2023 as in excess of 80%.
“From the perspective of palm oil production in 2023, the precise timing of the onset of El Niño as well as the speed at which El Niño conditions become strong enough to impact yields will be the crucial variables,” it said.
