Malaysia’s Palm Oil Prices Surge to Highest Levels Since 2022: What’s Fueling the Spike?

Kuala Lumpur, October 25 – Palm oil prices in Malaysia have reached their highest point since July 2022, with Bursa Malaysia’s third-month crude palm oil futures closing at RM4,486 per tonne on Wednesday, marking a notable surge in the edible oil market. According to BMI’s latest analysis, this represents a 22.6% increase for 2024 and a 19.5% rise year-on-year.

This October alone, prices rose by 12%, spurred by a confluence of supply constraints, currency fluctuations, and rising prices in other edible oils. The supply shortfall from Indonesia, the world’s largest palm oil producer, is a primary driver of this rally. Indonesian exports fell significantly in September 2024 to 1.79 million tonnes, down from 2.38 million in August, with the El Niño weather pattern cited for impacting yields and reducing overall production.

Adding to this strain, Indonesia’s upcoming B40 biodiesel mandate in 2025 is expected to divert another 1.5-1.7 million tonnes of palm oil from the export market each year. The possibility of a future B50 mandate, though unlikely in early 2025, has also stoked price expectations.

In Malaysia, 2024 exports have remained robust, with 12.3 million tonnes shipped between January and September—up from 10.88 million tonnes during the same period in 2023. However, tightening stock levels, which fell to 1.06 million tonnes in September 2024 from 1.37 million tonnes a year earlier, are adding to price pressures, according to data from the Malaysian Palm Oil Board (MPOB).

The depreciation of the Malaysian ringgit against the US dollar has further buoyed prices by increasing foreign demand for ringgit-denominated palm oil contracts. Between October 1 and October 22, the ringgit declined 4.2%, adding to the surge in export demand.

The Food and Agriculture Organization’s (FAO) Vegetable Oils Price Index (FVOPI) has also seen a 4.6% rise, a 21-month high in September, as supply tightening in the US and Europe lifted prices across edible oils, including soy, sunflower, and rapeseed oil. Additionally, escalating geopolitical tensions in the Middle East are causing volatility in energy markets, fueling demand for biofuels like palm oil as crude oil prices climbed 10% in early October.

Despite these short-term drivers, BMI cautions that the factors pushing palm oil prices up may not persist long-term. The effects of El Niño on Indonesian production are expected to ease as weather patterns normalize, and a potential La Niña in late 2024 may mitigate the risk of floods without seriously impacting palm oil yields.

Import demand is also anticipated to soften in Q4 2024, especially from India, which recently raised tariffs on crude and refined edible oils. BMI projects an average palm oil price of RM3,850 per tonne for 2024, compared to the year-to-date average of RM3,966. For 2025, the firm forecasts a further dip to RM3,650 per tonne but warns that several upside risks persist. These include potential production challenges in Indonesia and Malaysia, faster implementation of Indonesia’s biodiesel mandates, possible tariff reductions in India, and ongoing geopolitical instability in the Middle East.

— Agency Report