KUALA LUMPUR: Crude palm oil (CPO) prices are expected to average between RM2,200 and RM2,400 per metric tonne (mt) in 2016 as a slew of favourable developments could help shed some of the record high inventory of the commodity, said RAM Ratings in its outlook report.
The forecast average is a substantial improvement from CPO prices throughout this year. As at October, the average CPO price for this year is RM2,174/mt, according to RAM.
The benchmark three-month forward contract for February delivery was last traded at RM2,280/mt as at 5pm on Wednesday.
“Apart from a weaker ringgit, the effect of recent unfavourable weather conditions on palm oil production and a pick-up in biofuel demand when regional biodiesel mandates gain traction could alleviate inventory woes and support CPO prices,” it said.
Malaysian palm oil inventory rose to a record high of 2.83 million tonnes in October, according to Malaysian Palm Oil Board (MPOB) data.
The current palm oil stock has steadily accumulated on the back of weaker overseas demand and the global oversupply of edible oil-related commodities such as soybeans.
RAM added that other catalysts that could help spur consumption in palm oil included Indonesia’s higher biofuel content mandates that were envisaged to mop up about five million tonnes of palm oil annually.
“The Indonesian Estate Crop Fund had reportedly collected 4 trillion rupiah since its establishment last July, a portion of which has been disbursed to support the republic’s B15 mandate,” it said.
However, the lacklustre demand growth amid a slower economic environment in key consuming countries may continue to weigh on CPO prices.
The abundant supply of soybean oil, a close substitute to palm oil, is likely to dampen any upside to CPO prices, the research firm said.