Asian Crude Palm Oil Watch 4Q22

Malaysian benchmark crude palm oil (CPO) spot prices are on track to average around USD1,175 per tonne (t) in 2022, following a rebound to above USD850/t in 4Q22, from the end-September level of around USD700/t, and a very strong 1H22. We assume prices will average significantly lower at USD850/t in 2023, despite strengthening in 1H23 to above USD900/t, due to a weaker 2H23. The outlook for palm oil demand growth has been boosted by Indonesia’s decision in December 2022 to increase the share of palm-oil based fuel in diesel. In addition, the continuing La Nina weather pattern could cause flooding of estates in the region in 1Q23, affecting operations and constraining output.
However, we expect increased supply from 2Q23 to cause prices to drop in 2H23. Global palm oil production is likely to grow by 5% in the 2022-2023 marketing year (MY23), as per forecasts by the US Department of Agriculture (USDA), after being largely flat since MY20. The view is supported by the latest production data, which show that output in Indonesia is on an uptrend since June 2022 and Malaysian volumes are up yoy in 2H22 despite the impact of a labour shortage. Foreign worker availability in Malaysia is gradually improving, and we expect the situation to normalise by mid-2023. This should improve harvest frequency and output.
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