KUALA LUMPUR (Oct 29): Fitch Solutions Country Risk and Industry Research expects crude palm oil prices to average RM4,200 per tonne in 2021, compared with its previous forecast of RM3,800 a tonne.

In a report on Thursday (Oct 28), Fitch said it had also revised up its 2022 forecast, but continued to expect prices to correct significantly next year, averaging RM3,400 per tonne from its previous forecast of RM3,200 a tonne.

Fitch said the market will remain very tight in the fourth quarter of 2021 (4Q21) and into 1Q22 as there will be no immediate relief to severe labour shortages at Malaysia’s plantations.

Meanwhile, import demand remains strong as alternative edible oil prices have also spiked up, according to Fitch.

“For 2022, we forecast production conditions to improve as Malaysia is likely to ease some migrant labour travel restrictions as vaccination levels progress in the country, but we note this will take time to impact production.

“High palm oil prices should start to bite into demand and we believe the outlook for consumption in 2022 deteriorated somehow in recent months. We see global consumption growth slowing down in 2022 to 2.7% year-on-year (y-o-y), compared with our forecast back in August of a 3.4% growth in consumption in 2022, and with a 3.4% growth expected for this year.

“In particular, we have revised down our India's palm oil consumption forecast,” it said.

Short-term outlook (six months)

Fitch added that the demand picture is also bullish for the near term due to a number of factors.

It said import demand picked up in recent months (Indian imports spiked in September) and will remain strong despite the rally in palm oil prices. This is because alternative edible oil prices have also shot up due to canola supply issues in Canada, coupled with strong demand for edible oils driven by the economic recovery from Covid-19 globally this year.

It said improved feed consumption amid robust pork production in 2021 as the pig herd in Asia recovers from the African swine fever is also providing support to the soy complex.

Finally, the rise in fuel demand for transports as economies reopen in 2021 as compared to 2020 is also supporting biofuel consumption.

Long-term outlook

Fitch forecast production conditions to improve as Malaysia is likely to ease some migrant labour travel restrictions as vaccination levels progress in the country.

It said this will help with the ongoing acute labour shortages.

“Yields will start to recover and we see Malaysia’s output rising for the first time in three seasons in 2021/22 by 7.3% y-o-y.

“Output should remain on an uptrend in 2022/23, which will help stocks embark on a slow recovery.

“In Indonesia, production growth is also likely to accelerate as Covid-19 disruptions decrease.

“We forecast output rising by 3.5% in 2021/22, compared with 2.4% in 2020/21,” according to Fitch.