Elevated CPO prices expected to decline post-Q1 2025: analysts
13/01/2025 (New Straits Times), Kuala Lumpur - The elevated crude palm oil (CPO) prices are unlikely to persist beyond the first quarter of 2025, analysts say.
Hong Leong Investment Bank Bhd (HLIB) anticipates that the current strength in CPO prices will diminish after Q1 2025, as the price premium of palm oil over other competing vegetable oils is unsustainable in the long term.
"The high palm prices will result in demand rationing and prompt key vegetable oil importing countries to switch to cheaper alternative vegetable oils (hence narrowing the price gaps), particularly when palm production starts showing signs of improvement.
"Meanwhile, more favourable palm supply prospects in 2025 and full implementation of B40 in Indonesia could turn out to be slower than expected and will also affect the CPO prices," it said in a note.
CPO price has surged by more than 15 per cent since October 24, bringing 2024's average to RM4,230 per metric tonne (mt) from RM3,832 per mt in 2023.
However, HLIB has maintained its 2025-2026 CPO price assumptions of RM4,000 per mt and RM3,800 per mt, with the view that CPO price will remain at elevated levels in the near term (possibly until Q1 2025), supported by weak near-term output.
The firm noted that its current price projections are premised on the assumptions that weather conditions are set to normalise (and even if La Niña does happen, it will be a mild and short-lived one), and B40 in Indonesia will be implemented on a gradual basis.
"We maintain our neutral stance on the sector, as the elevated CPO price will likely not sustain beyond Q1 2025," it said.
Echoing the views, Maybank Investment Bank Bhd (Maybank IB) said 2025 will be another volatile year swayed by geopolitical risk and changing government policies, especially ID's unsustainable B40 mandate.
Without higher crude oil prices to narrow the palm oil and gas oil (POGO) spread, the firm believes CPO spot price will be under threat for a correction after Ramadhan.
"We remain upbeat about CPO prices in Q1 2025 as early Chinese New Year and early Ramadhan demand will coincide with the typical low output cycle of Q1.
"Post Q1 2025, we expect CPO price to trend lower, trading within a wider range of MYR3,500/t to MYR4,500/t for the remainder of 2025.
"CPO's unusual price leadership over other major vegetable oils should end when the industry enjoys seasonal output recovery in the second half of the year," it said.
Maybank IB has maintained its 2025 to 2026 CPO average selling price (ASP) forecasts of MYR4,000 per tonne.
"We advocate taking a short-term trading strategy in Q1 2025, but 12-month neutral. Our preferred buys in the region are SD Guthrie Bhd, Genting Plantations Bhd and BLD Plantation Bhd," it added.