The palm oil market is expected to show a slightly positive price trend going into 2024, according to Malaysian Rating Corporation Bhd (MARC).
In a statement, it said crude palm oil futures prices for the remainder of the year and going into 2024 are projected to range between RM3,700 and RM4,100 a tonne.
In 2022, the conflict between Russia and Ukraine led to a global sunflower oil supply shortage, causing palm oil prices to reach record highs. In July 2022, the formation of the Black Sea Grain Initiative which allowed Ukraine to export sunflower oil through the Black Sea region has resulted in a steady global supply of sunflower oil.
For the marketing year ended Aug 31, 2023, Ukraine’s sunflower oil exports increased by 27.3% to 5.7 million tonnes, and due to its bountiful harvest of seed crop, Russia’s sunflower oil exports increased by 28.6% to 4.1 million tonnes. This led to sunflower oil prices dropping to below that of soybean oil, and in Europe, even experiencing discounts compared to palm oil prices; typically, sunflower oil prices trade above soybean oil, followed by palm oil prices.
In the near term, MARC said, supply constraints are expected to drive up palm oil prices.
“Typically, 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 first quarter 2024. Furthermore, El Niño’s hotter and drier weather conditions in Southeast Asia have impacted Indonesia, the largest palm oil producer, said the local rating firm.
On the demand side, MARC said usage of biodiesel will be a driving factor. Indonesia has implemented the mandatory usage of biodiesel with 35% of palm oil in the transport sector.
The Indonesian Palm Oil Association expects the use of palm oil for biodiesel to exceed food consumption. For 2024, the US Department of Agriculture is forecasting global palm oil consumption to increase by 4.9% to 77.2 million tonnes. In addition, the memorandums of understanding signed between China and Malaysia to secure palm oil supplies will support demand for palm oil.
