PETALING JAYA: Crude palm oil (CPO) prices will remain weak in the coming months, trading close to RM2,000 a tonne, according to Fitch Solutions Macro Research.
It said CPO prices were down 20% so far this year, as production growth was robust and import demand lacklustre which boosted stocks.
Other factors such as the US-China trade tensions and recent sharp drop in crude oil prices have 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 in a statement.
Fitch maintained its view for prices to average slightly higher in 2019 on a year-on-year (y-o-y) basis but it has revised its forecast lower as prices would end 2018 at a lower level than anticipated.
“We forecast prices to average RM2,300 a tonne (compared with RM2,400 a tonne previously and to the five-year average of RM2,450 a 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% y-o-y, at the fastest rate recorded since 2013.
Indonesia is increasingly supporting biodiesel use in the country.