KUALA LUMPUR: Moody’s Investors Service has raised its forecast for crude palm oil (CPO) prices to range between RM2,200 and RM2,600 per tonne, with a midpoint of RM2,400 due to tighter supply over the coming 12 months.
It said in a statement yesterday the higher forecast was based on its higher medium-term price sensitivity range for CPO which is around 14% higher than the RM2,100 midpoint of its previous price range of RM1,900 to RM2,300.
“While CPO prices will likely remain above our revised price range in the coming months because of continued supply constraints, average CPO prices over the last five to 10 years of RM2,400 to RM2,500 per tonne suggest that the current high of around RM3,500 per tonne is unlikely to be sustained, ” it said.
On Nov 17, Malaysian Palm Oil Board data showed that daily CPO prices rose above RM3,500 per tonne for the second straight day, to the highest level since April 2012.
CPO prices have risen considerably this year amid supply constraints. Labour shortages because of movement restrictions, a decline in production yields due to dry weather earlier this year and reduced fertiliser application by producers in the past two years during low CPO prices have weakened CPO supply.
Moody’s said CPO price averaged around RM2,600 per tonne for the 10 months through October 2020, which is 30% higher than around RM2,000 during the same period in 2019. It also pointed out that due to the Covid-19 coronavirus pandemic, a freeze on foreign worker recruitment and border restrictions have reduced the number of workers employed for palm oil harvesting.
Also, dry weather in Indonesia (Baa2 stable) and Malaysia (A3 stable) earlier this year has resulted in lower fresh fruit bunch yields and crude palm oil production.
“Meanwhile, adverse weather is likely to disrupt production in the coming months, ” it said.
The Asean Specialized Metrological Centre forecasts that La Niña conditions, which can cause higher-than-average rainfall over Southeast Asia, will continue through to March 2021. The phenomenon could disrupt palm oil production in Malaysia and Indonesia, which account for around 85% of global CPO production.