CPO prices to weaken in 2H2023, Fitch Ratings says

Malaysian benchmark crude palm oil (CPO) spot prices are likely to weaken to below US$700 (RM3,098.55) per tonne by year end on increasing output, after averaging around US$915 a tonne so far in the first quarter of 2023, according to Fitch Ratings.

In a statement on Friday (March 24), the rating agency said a hit to sunflower seed oil supply due to the Russia-Ukraine war is a key upside risk to its expectations.

It said CPO prices since late-2022 had been supported by market expectations of significantly higher biodiesel consumption and lower exports from Indonesia, and the impact of heavy rainfall at the start of 2023 on output.

However, it said latest production data from Malaysia and Indonesia indicated that yields are on an uptrend.

The shortage of foreign workers in Malaysia is also being addressed at a rapid pace, and is likely to be resolved by the first half of 2023 (1H2023), said the agency.

Fitch said weather forecasters believe the El Nino weather pattern could develop from 2H2023, which would improve output of soybean oil, CPO’s key substitute, and pressure global vegetable oil prices.

It said El Nino had historically been associated with weak CPO prices, and prices dropped to an average of around US$535 a tonne in 2018-19.

Fitch also raised its assumption for long-term benchmark CPO prices beyond 2024 to US$650 a tonne, from US$600 a tonne, to account for significant wage-cost inflation for the industry in 2022-23.

Tags: exports, Indonesia, prices, Crude palm oil, Malaysia, Эль-Ниньо, CPO, sunflower seed oil