PETALING JAYA: Affin Hwang Investment Bank Research (Affin Hwang Research) expects volatility of vegetable oils prices will continue to persist in the second half of the year (2H24) given the many uncertainties surrounding the agriculture industry as well as the global economy.
The research house explained that the correction in crude palm oil (CPO) prices in May 2024 has resulted in improved price competitiveness in the market vis-à-vis the other vegetable oils.
“We believe price volatility will continue to persist in 2H24 given the many uncertainties surrounding the agriculture industry as well as the global economy,” the research house said.
It said prices of vegetable oils remained volatile in 1H24, with CPO prices trading in the range of RM3,600 per tonne to RM4,600 per tonne and average at RM4,018.50 per tonne.
“The higher year-on-year CPO price assumption for 2024 is on the back of CPO production (especially in Indonesia) being affected by the El Nino whether pattern in 2023 to 2024 and CPO price to weaken in 2025 on the back of an increase in production from Malaysia as well as Indonesia due to better weather conditions,” it added.
Affin Hwang Research pointed out factors to watch out for in 2H24 include the weather and its impact on crop production, global inventory of edible oils, demand for edible oils, biodiesel mandates worldwide and changes in policies.
Looking at the previous strong La Nina events, the research house said CPO prices started to decline when production was seeing strong growth, usually months after the start of a La Nina weather phenomenon.
It said weather forecasters are taking the view that there is a high chance that La Nina is on its way as weather forecast models are showing a decrease in ocean surface temperatures.
The upcoming La Nina is forecasted to be a mild-to-moderate phenomenon. Typically, a La Nina event is associated with above average rainfall over Malaysia, Indonesia, Australia and parts of southern Asia. The research house said during the La Nina phenomenon, while certain countries could benefit from increased rainfall, an increased chance of flooding could disrupt agricultural activities.
For the palm oil industry, the occurrence of La Nina following an El Nino event will normally cause fresh fruit bunch yields to increase, due to adequate rainfall to nourish the oil palm plantations after severe dry weather.
