Palm Oil Prices to Weaken in 2024 on Higher Output
20.11.2023 (Fitch Ratings) - Fitch Ratings-Jakarta/Singapore-20 November 2023: Fitch Ratings expects average crude palm oil (CPO) prices to be significantly lower in 2024, based on our expectations of a higher output of palm and other vegetable oils, due mainly to favourable weather conditions amidst a transition in global weather patterns. We assume Malaysian benchmark CPO prices to average USD650/tonne (t) next year, compared with USD830/t in 2023.
Lower prices should weaken producers’ margins and EBITDA, and raise leverage. However, EBITDA should be supported by higher fruit yields, oil output and lower unit production costs. Free cash flow (FCF) profiles should also benefit from a release of working capital, on lower inventories and trade receivables. Several Fitch-rated issuers have limited rating headroom in terms of credit metrics, but we expect them to support their financial profiles by cutting discretionary capex and dividends.
A strong El Nino could start to affect yields from 2H24 by inducing dry weather, and presents an upside to our price assumptions.
For further information, please see our report "Asian Palm Oil Outlook 2024", which can be accessed at www.fitchratings.com or by clicking the link above.