Palm oil prices may fall in 1H 2025 on higher supply

Market: Agriculture, Biofuels
27/02/25

Palm oil prices will likely weaken in the first half of 2025 because of growing supply and lower-than-expected demand from the biofuels sector, speakers said at the Palm and Lauric Oils Price Outlook Conference and Exhibition in Kuala Lumpur, Malaysia this week.

Bursa Malaysia crude palm oil (CPO) futures may weaken in the first half of 2025 to between 4,000-4,200 ringgit/t ($900-945/t) by July on rising output and weaker demand, according to agricultural economist and managing director of consultancy Glenauk Economics, Julian McGill. After this, prices will likely rebound as more palm oil will be consumed for biodiesel towards the end of the year, he added.

The price premium of palm oil to rival edible oils like soybean oil would therefore narrow in the first half of 2025. Palm oil has been at an unusual premium to soybean oil in the last three months, weakening demand for palm oil compared with its rival.

Major global edible oils are also at wide premiums to gasoil, which will pressure annual production of biodiesel and hydrotreated vegetable oil (HVO) in 2025 to decline by 500,000t on the year, said Oil World's executive director Thomas Mielke. This is compared with an average 3mn-4mn t year-on-year increase in biofuels output in the last four years, Mielke said.

Supplies are currently tight in most countries except for Indonesia, where palm oil stocks will start accumulating on a forecasted 2.2mn t increase in production to 47.7mn t in 2025, according to Mielke.

Some of the build-up in Indonesia may even spill over in the form of imports into Malaysia from April, McGill said. This, alongside lower-than-anticipated demand for biofuels in Malaysia after the country put on hold its 20pc biodiesel blending (B20) ambitions, may weigh on Malaysian palm oil prices.

But biodiesel monthly volume allocations for fuel suppliers are expected to be higher in the second half of 2025 as Indonesia implements its 40pc biodiesel blend mandate (B40), said McGill.

Indonesian consumption of palm oil for biodiesel is forecast to rise by 3.8mn t, against a 2.2mn t fall in exports for 2025, said the Indonesian palm oil association's (Gapki) head of foreign affairs Mohamad Fadhil Hasan. This excess consumption should then provide support for palm oil prices in the latter half of this year.

By Malcolm Goh

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