Malaysian palm oil futures have experienced a decline as of December 30, 2024, with the benchmark contract for March delivery dropping RM4 (0.09%) to RM4,620 (RM$1,034.25) per metric ton. This decrease follows a downturn in soyoil prices on the Dalian market, where the most-active soyoil contract fell by 0.31%. The market is currently in a state of anticipation, awaiting further economic data from China and the U.S. to provide clearer direction for commodity prices [070ee7f5].
This drop in palm oil prices comes at a time when the Indian government has waived import duties on all vegetable oils, aiming to alleviate consumer burden amid rising prices. This decision includes refined vegetable oils and solvent-extracted oils, while coconut or copra oil remains subject to state trading enterprises. The move is expected to positively impact the Indian economy and provide relief to consumers [c1bc2dd6].
However, the Malaysian palm oil industry is facing significant challenges, particularly with Indonesia reducing its crude palm oil (CPO) duty from US$90 to US$63 per tonne, which adds further price pressures on Malaysian producers. In response, India has imposed a 20% tax on imported vegetable oils to support its farmers, complicating the market dynamics for Malaysian palm oil [d9f195b8].
Fitch Ratings has recently raised its price forecast for Malaysian crude palm oil to US$800 (RM3,578) per tonne for 2025, and US$700 per tonne thereafter. This revision reflects slower yield recovery in Indonesia and rising biodiesel consumption, despite expectations that prices will weaken from 2024 due to improved palm oil supply and competition with soybean oil [d9e687ea].
Additionally, Malaysia's finance ministry is considering a reduction of the windfall tax on palm oil, currently set at 3,000 ringgit (US$718) per tonne, as production costs have nearly doubled to this level. In 2023, palm oil exports contributed over US$21 billion to Malaysia's GDP, highlighting the sector's importance to the national economy. However, Indian traders have canceled 100,000 tonnes of palm oil deliveries due to high prices, indicating a potential decline in demand [d9f195b8].
Moreover, Indonesia's biodiesel mandate is set to increase palm oil usage to 40% starting January 2025, which could boost global consumption by 1-2%. La Nina conditions are also expected to improve CPO output in 2025, providing a potential upside for Malaysian producers [d9e687ea].
Finally, Malaysia has called for exemptions for smallholders under the EU Deforestation Regulation, following the World Trade Organization's rejection of its complaint against the EU in March 2024. These developments underscore the interconnectedness of global agricultural markets and the challenges faced by producers in navigating new tax measures and international regulations [d9f195b8].