Palm Oil Leads Rivals, Offering Attractive Returns

Resilienceapac – Palm Oil Leads Rivals in the edible oil market, showing a significant price recovery driven by low production due to adverse weather conditions. According to the latest research note from Maybank Investment Bank (Maybank IB), crude palm oil (CPO) prices have surged, now trading at a higher premium compared to other major vegetable oils.

As of recent data, CPO is priced at a premium of $80 per ton over U.S. soybean oil, compared to $54 a month ago. Meanwhile, the premium over Northwest European sunflower oil has jumped to $160 per ton, up from $55 previously. The most striking shift is against German mustard oil, where CPO now holds a $196 per ton premium a sharp contrast from a $21 discount just a month ago. This reversal marks a rare moment in the industry, as CPO traditionally trades at a discount to other vegetable oils.

Market Challenges and Policy Impact

The widening Palm Oil-Gas Oil (POGO) spread, which now stands at $676 per ton compared to $521 last month. Could have major implications for Indonesia’s biodiesel mandate. The Indonesian government (GOI) had set an ambitious B40 biodiesel mandate for 2025. Targeting 15.6 million kiloliters of palm-based biodiesel consumption. However, with such a high POGO spread, executing this mandate may prove challenging.

To manage costs, Indonesia plans to subsidize only 7.55 million kiloliters of biodiesel for the Public Service Obligation (PSO) sector. While suspending subsidies for the non-PSO sector. If the spread remains elevated throughout 2025, demand for palm biodiesel could decline, potentially influencing overall CPO demand.

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Investment Outlook and Market Performance

Palm Oil Leads Rivals not only in pricing but also in investment potential. Analysts at Maybank IB recommend a short-term trading strategy for Q1 2025. As CPO spot prices currently stand at RM4,732 per ton an increase from this year’s average of RM4,653 per ton. The price recovery is largely supported by low inventory levels reported by the Malaysian Palm Oil Board (MPOB).

As of January 2025, CPO stocks fell to 1.58 million tons. Marking an 8% monthly drop and a 22% year-over-year decline, the lowest level in 21 months. Production also dipped significantly, recording 1.24 million tons (-17% MoM, -12% YoY) due to heavy rainfall affecting key producing states like Sarawak, Johor, and Sabah. Meanwhile, exports declined to 1.17 million tons (-13% MoM, -13% YoY), partly due to CPO’s high price premium over other vegetable oils.

Preliminary data for February 2025 exports indicates mixed performance. Reports from Amspec and Intertek show shipments at 319,410 tons (+6% MoM) and 336,980 tons (-4% MoM), respectively. However, overall export levels remain subdued, with estimates around 1.0 million tons for the month.

Despite these fluctuations, Maybank IB maintains a “BUY” recommendation for leading palm oil companies such as Sime Darby Plantation (SDG), Genting Plantations (GENP), and Bumitama Agri (BAL). The sector’s resilience is expected to be reinforced by strong Q4 2024 earnings and ongoing investor interest amid tight supplies and stable pricing.

With Palm Oil Leads Rivals in pricing and investment potential. The industry is set to remain a key player in the global edible oil market in early 2025.

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