We attended the 35th Palm & Lauric Oils Price Outlook Conference & Exhibition (POC2024), which was held at Shangri-La Hotel Kuala Lumpur on 4 – 6 March. POC2024 is one of the major industry events, attended by about 1,700 delegates from all over the world. Many prominent speakers presented their views in the seminar, covering the outlook and possible challenges in the plantation sector in 2024 as well as topics surrounding the supply and demand of major edible oils, the industry’s most pressing issues, market trends and trade possibilities. Overall, most of the speakers painted a negative to slightly neutral outlook for the sector. Other speakers were bullish on CPO prices in the near term due to tight palm oil stockpiles but expect prices to soften in 2H, which we concur. The outlook for the global grain and oilseed markets is expected to remain uncertain, exacerbated by the effect of unpredictable weather patterns, geopolitical tensions, the global economic recovery, changes in government policy (especially in the biofuel mandate) and movements of the USD against major currencies. While for the downstream, the sector may need some time to get back to the normal supply chain after overstocking in 2021 amid weak end-consumer demand currently. Maintain the Plantation sector as Underweight.

Key Highlights From Some Speakers:

Dr Sathia Varqa (Senior Analyst, Fastmarkets Palm Oil Analytics)

According to Dr Sathia, Malaysia’s CPO production in 2024 is expected to increase by marginal 1 - 2% to 18.75 - 18.95mn tonnes (the highest production in 4 years), thanks to favourable weather conditions and increase in labour productivity. While for Indonesia, the production is expected to be flat at 48 – 48.5mn tonnes. He expects CPO prices to trend lower from 2Q onwards after witnessing the peak of RM4,000/tonne in 1Q. The high phase of palm oil output from March will likely keep prices under pressure. In the event if La-Nina is forming, production will increase further to approximately 19mn tonnes, in his view. The situation is exacerbated by high stockpiles in China and India. Meanwhile, he opines that supply risk from weather and geopolitical tensions are the two main swing factors to determine CPO pricing in 2024.

Mr. Thomas Mielke (Executive Director, ISTA Mielke GmbH - Oil World)

Mr. Mielke is more bullish and views that vegetable oil prices will increase, supported by the prospective global production deficit in 2024. He expects CPO futures to trade in the range of RM3,800 - RM4,300/tonne over the next 3 months. The growth in world production of 8 vegetable oils is forecast to slow to 3.9mn tonnes in 2023/24 (versus an increase of 9.3 tonnes last season). According to Mr. Mielke, the palm oil production has fallen sizably below trend already since 2019 and there has been an alarming decline in average yields. Palm oil production is expected to be stagnant with growth of about 0.2mn – 0.3 mn tonnes in 2024 (the smallest growth in 4 years). Malaysia's production will be around 18.6mn while Indonesia will be virtually stagnating in 2024. Meanwhile, world production of the soybean crop is expected to rise to 391mn tonnes in 2023/24 compared to 372mn tonnes one year ago, mainly driven by huge growth from Argentina (from 22.3mn to 50mn tonnes). South America will show a record bumper crop of 215mn versus 196mn a year ago. Mr. Mielke also expects the current premiums of palm oil over sunflower oil and soybean oil prices will narrow in next several weeks, driven by increased prices for sunflower oil and soybean oil. He believes that the rising biofuels production in North and South America will support prices.

Source: TA Research - 7 Mar 2024