Palm Oil Prices Projected to Reach $1,000 per Metric Ton by January 2024: Industry Experts

Hadijah Alaydrus, CNBC Indonesia

Market

Saturday, 04/11/2023 06:30 WIB

Photo: Palm oil plantations (The Washington Post via Getty Images)

Nusa Dua, CNBC Indonesia – Palm oil prices are projected to increase to US$ 1,000 per metric ton by the end of January 2024. This increase is driven by demand at the beginning of the year and limited production and CPO stocks.

Meanwhile, currently, the price of Indonesian palm oil or CPO is still in the range of US$ 800 – US$ 820 per metric ton.

“I think it could reach US$ 1,000 per metric ton at the end of January, in May-June it could return to US$ 800. In the first semester the average CPO price was US$ 800,” said Nagaraj Meda, Founder, Chairman and Managing Director Transgraph at IPOC 2023, Friday (3/11/2023).

However, if Indonesia is hit again by El Nino, Nagaraj believes the CPO price will reach US$ 1,100 per metric ton. Thus throughout the year, he estimates prices could reach US$ 900.

Currently, volatility in palm oil commodities occurs due to 4 main things, namely changes in commodity prices, climate changes such as El Nino or La Nina.

“It is possible that El Nino in Indonesia will occur until May 2024,” said Nagaraj.

The next factor is government policy (monetary policy, Indonesian export policy, and changes in policy regarding biodiesel, as well as supply disruption due to global geopolitical conditions.

“This condition causes global market dynamics to increase. Risk management is needed which can be done in two ways, namely first, risk calculations for position in the market, prices and margins, and second, calculations regarding demand, weather conditions and supply,” he stressed.

Thomas Mielke, Executive Director, ISTA Mielke GmbH (Oil World), admitted that it is difficult to predict when the market will rise. It all depends on production. Currently, he sees that Indonesian palm oil and global vegetable oil production is facing a deficit position.

“This is very difficult to say. Prices will rise. Palm oil will rise by at least US$ 100,” he said.

In fact, Thomas sees prices could rise by US$ 150 – US$ 250 from the current position of US$ 810 – US$ 820 per metric ton. According to him, the current CPO price is still below the average market price, aka undervalued.

“The fundamental outlook for a production deficit would result in increased consumption, and doubts in production, and both of these could drive prices higher,” he said.

Vegetable Oil Projections

On the other hand, Thomas explained that the increase in production of sun oil and rapeseed will continue to increase in October-December 2023 and will slow down in January-June 2024.

Meanwhile, soybean oil production is expected to increase by 2.2 million tonnes and world dependence on soybean oil is expected to increase and reach its highest level and is expected to experience a production surplus.

“In the future, soybeans will become an important crop whose growth will be greater but there is no certainty about demand. Currently, 1 million tons of soybeans are used every day,” said Thomas.

Thus, the prospect of a global production deficit in 2023-2024 is likely to cause an increase in the price of vegetable oils, including palm oil.

Meanwhile, Nagaraj revealed that the abundant supply of sunflower oil and rapeseed oil is also a competitor to palm oil.
“Sunflower and rapeseed oil production in the European Union and Canada increased by 2.75 million metric tons to 19.59 million metric tons in 2022-2023 but is predicted to decrease by 0.5 million metric tons in 2023-2024. The European Union is already growing “to become the leading producer of sunflower oil in the 2022-2023 period,” he explained.

He added that the increase in industrial consumption of vegetable oils globally was driven by the United States and Indonesia.

This Indonesian policy is related to the implementation of B35 biodiesel and will be increased to B40 in 2024. Nagaraj added that the increase from B35 to B40 is predicted to increase palm oil consumption by up to 12.45 million metric tons. Then, increasing investment in renewable energy will also increase consumption of vegetable oil in the United States.

Total global consumption of vegetable oils in the industrial sector has increased by 8.26% since 2022 and is predicted to grow another 1.78% by the end of the year.

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