KUALA LUMPUR: Fitch Solutions Macro Research forecasts crude palm oil (CPO) prices will remain weak over the coming months, trading close to RM2,000 a tonne.
It said on Thursday CPO prices are down 20% so far this year, as production growth was robust, import demand lacklustre which boosted stocks.
Other factors such as US-China trade tensions and the recent sharp drop in crude oil prices also weighed on the global oil crop complex.
“We believe most of the downside in palm oil prices is behind us and we expect prices to stabilise. To be sure, stocks will remain elevated and constrain price growth.
“However, palm oil is currently trading at a steep discount to soy oil, also suggesting limited downside to prices. Moreover, we are positive from current levels on Brent prices.
“Prices in 2018 will come in at RM2,280 a tonne, significantly lower than the RM2,704 a tonne achieved in 2017,” it said.
Fitch Research said looking at 2019, it maintained its view for prices to average slightly higher on a y-o-y basis but we have revised our forecast lower as prices will end 2018 at a lower level than it was anticipating.
“We forecast prices to average RM2,300 /tonne (compared with RM2,400 /tonne previously and to the five year average of RM2,450 /tonne) and hold an above consensus view on prices , as measured by Bloomberg .
Supply will remain ample thanks to steady production growth in Indonesia, which will keep prices relatively low in 2019. Consumption will grow by a strong 5.0% y-o-y, at the fastes t rate recorded since 2013.
Indonesia is increasingly supporting biodiesel use in the country, Malaysia is touting with the idea to revive its biodiesel sector.
Import demand from India will also be stronger after a change in import tax regime dented shipments in 2018.
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