KUALA LUMPUR (Oct 27): Fitch Solutions has revised up its 2020 palm oil price forecast to RM2,580 per tonne, from RM2,450 previously, as global palm oil production decreased and palm oil import demand from India and China recovered strongly.

The unit of Fitch Ratings said in a note today that it expects palm oil prices to remain relatively elevated in the coming months but to average slightly lower than current prices over the rest of the year.

“We are revising up our 2020 price forecast to RM2,580 per tonne, from RM2,450 per tonne previously, assuming a RM2,600 per tonne average over the rest of the year from current prices of RM2,800 per tonne,” it said.

It also said palm oil prices had proven to be resilient amid the Covid-19 crisis and are on track to be one of the only commodities to average higher on a year-on-year (y-o-y) basis (along with rice, wheat and coffee).

It opined that palm oil prices will be driven higher by a decrease in global palm oil production in 2019/20 (the period ended Sept 30, 2020) due to a delayed impact on trees, from September 2019 to March 2020, of the dry weather recorded in 2019.

Besides, import demand from India and China recovered strongly on a month-on-month (m-o-m) basis from May-June onwards after a sharp drop in demand due to Covid-19-related disruptions in January to April.

“Taken together, these factors led to a drawdown in inventories,” it said.

Fitch Solutions also revised up its 2021 price forecast, but maintained its view that prices will stagnate on a y-o-y annual average basis.

“We now see prices averaging RM2,580 per tonne in 2021, compared with RM2,450 per tonne previously. This will be above the 2015-2019 average of RM2,424 per tonne,” it said.

Although global production will recover strongly in 2020/21, Fitch Solutions opined that economic activity will be stronger in 2021, along with restaurant sales and fuel use, which will support palm oil consumption.

“A continued recovery in palm oil imports by India and China and robust biodiesel production in Indonesia will keep prices supported next year,” it said.