Palm oil set to rise in 2H as La Nina poses supply risk

Palm oil is likely to extend its rally through the second half of the year (2H2024), as the looming onset of La Nina threatens already-strained supplies of the world’s most-consumed cooking oil.

The weather phenomenon is expected to set in from September or October, which could bring above-normal rains to key Southeast Asia growers, according to Donald Keeney, a meteorologist with forecaster Maxar. While it is difficult yet to know how intense the precipitation will be, the timing risks fieldwork disruptions when harvests typically peak.

Palm oil plantations have already been battered by erratic weather, limited expansions, and ageing trees, pushing prices up more than 5% so far this year, and leaving the market increasingly vulnerable to further setbacks.

Benchmark futures in Malaysia will close the year at RM4,000 a ton, according to the median of 30 estimates in a Bloomberg survey of traders, analysts and plantation executives. That would put them on track for the first annual gain since 2021, potentially making food prices costlier globally.

“The factors to watch are weather and demand,” said Dorab Mistry, a veteran trader and director at Godrej International Ltd.

Prices are likely to rise as high as RM4,200 in 2H2024, according to the survey. However, if the impact of La Nina turns out to be milder, palm may drop to RM3,750 between August and September, before rising again, it showed. The ubiquitous oil, found in everything from chocolates to shampoos, closed 0.5% lower at RM3,915 last Friday.

Palm oil will probably average RM3,960 in 2024, according to the survey, compared with RM3,798 last year. Some other factors are also expected to impact the market. Dry weather in the Black Sea region could hurt sunflower crops, while Indonesia’s move to add more biofuels in diesel will reduce palm’s exportable surplus.