CPO prices to remain elevated in Q1 due to low inventory levels as at end-2024
KUALA LUMPUR: Crude palm oil (CPO) prices are likely to remain elevated in the first quarter of 2025 (Q1 2025) due to low inventory levels as of the end of last year.
CGS International reckoned the global palm oil supply would remain tight in Q125 given the low inventory level and that the first quarter is usually the lowest quarter for palm oil production.
"Hence, we expect CPO prices to remain elevated in Q1 2025 until a recovery in palm oil output is seen in Q2 2025, particularly in Indonesia, after disruptions caused by El Niño in 2023. Additionally, we expect a higher supply of competing vegetable oils, such as soybean oil, in Q2 2025," it said in a note.
The firm maintained its CPO price forecast for 2025 at RM4,000 per tonne on the back of a 3 per cent of increase in global CPO production in 2025F. This will be primarily driven by Indonesia.
" With climatic conditions stabilising, we anticipate a significant recovery in Indonesian production in 2025F. In contrast, we forecast Malaysia's palm oil production to remain largely flat year-on-year (YoY) in 2025F, following a strong recovery in 2024," it said.
It also maintained its CPO price forecast as it expects demand rationing by some of the destination countries, such as China and India. This is given the current high CPO prices trading at RM4,200-RM4,700 per tonne.
"Note that palm oil is still more expensive than soybean oil and sunflower oil currently. We expect global CPO demand to grow 1 per cent YoY in 2025F, with the demand mainly coming from Indonesia to support its B40 biodiesel programme," it added.
Most plantation companies are also poised to deliver strong results in Q4 2024, supported by elevated CPO prices, with the average price in Q4 2024 at RM4,840 per tonne.
Despite expecting robust performance and continued high CPO prices in Q1 2025, the firm maintained a 'Neutral' rating on the sector, as it sees potential CPO correction in Q2 2025 driven by recovering palm oil production, especially from Indonesia, and higher supply from competing vegetable oils.
It continues to favour SD Guthrie Bhd and Hap Seng Plantation Bhd as its sector top picks.
The Indonesian Ministry of Energy and Mineral Resources expects the implementation of the B40 biodiesel policy in Indonesia to raise its biodiesel quota to 15.6m kilolitres (kl) in 2025, up 16 per cent from 13.4m kl in 2024.
Despite earlier plans for full implementation by Jan 1, 2025, the B40 programme has been delayed, with companies receiving a one- to two-month transition period to meet the new biodiesel blending requirements.
"We anticipate that the higher palm oil blending ratio in Indonesia's biodiesel will continue to support robust global palm oil demand."