PETALING JAYA: Fitch Solutions is revising upwards its palm oil price forecast for 2020 to average RM2,450 a tonne, from RM2,300 a tonne previously, implying an average of RM2,470 a tonne over the rest of the year, to account for the sharp rally recorded in prices in recent months.
It noted that the ongoing rebound in India and China’s imports after they plummeted due to Covid-19 will keep prices supported in the coming weeks, but palm oil is likely to ease once stocks are replenished.
“On one hand, rising oil prices will provide added impetus to palm oil prices in the coming quarters. On the other hand, we caution that although the global economy is on a recovery path as containment measures are being lifted, the large majority of countries will record a sharp recession this year, including key end markets for palm oil, and we forecast 2020 palm oil demand to be weak overall and lower than in 2019,“ Fitch said in a report.
Moreover, the ongoing economic recovery is proving to be uneven as the pandemic is still spreading in key markets, as this will delay the normalisation in palm oil consumption as the outlook for end-markets remains clouded.
Production in Malaysia is also likely to be stronger in Q4’20 and beyond as output recovers from the tree yield stress recorded over September 2019-March 2020 when production declined year-on-year significantly.
In 2021, Fitch Solutions forecast prices to average RM2,450 a tonne, from RM2,400 a tonne previously, in line with 2020.
“Palm oil consumption will continue on its recovery path as consumers’ patterns return to normal levels and oil prices remain on an uptrend. Biodiesel consumption will pick up strongly as transport activity normalises fully and fuel demand picks up and because Indonesia and to a lesser extent Malaysia will continue to push greatly to increase biodiesel content in conventional fuel.”
Meanwhile, palm oil production will also rise in 2020/21 season (starting in October 2020) following the negative impact dry weather had on output in 2019/20. This will cap palm oil prices.
In the longer term it forecast palm oil prices to ease slightly as it expects demand growth to underwhelm in China, India and the EU. It sees prices averaging RM2,350/tonne in 2022, which is higher than the 2018 and 2019 averages.
It added that biodiesel use will support consumption growth, while production is facing increasing headwinds with both Indonesia and Malaysia willing to freeze new plantations.
“Production will continue to grow in the coming years, but at a slower pace. Although palm oil prices could receive a temporary boost from weather-related global oilseed production disruptions, or a cyclical tightening of the soybean market, we believe the global supply for oilseeds and palm oil under normal weather conditions will be ample. This means that palm oil prices will remain relatively subdued on a five-year horizon under average growing conditions.”
Fitch has made a number of downward revisions to palm oil consumption since March and now expects global consumption to decline for the first time since at least 2000. All majors markets will see a drop in 2020.
“We expect consumption to rebound by 5.6% in 2021 and to exceed pre-Covid levels but see downside risks to that view should the economic recovery be shallower than expected.”
