KUALA LUMPUR: Crude palm oil (CPO) prices are expected to strengthen in 2025, averaging RM4,250 per tonne, representing a 6.3 per cent increase year-on-year (y-o-y), according to AmInvestment Bank Bhd (AmInvest).

In a note today, AmInvest attributed the higher prices to supply constraints in palm, rapeseed, and sunflower oils.

"We anticipate that the average CPO price will exceed RM4,500 per tonne in the first half of 2025 (1H2025) before easing to RM4,000 per tonne in 2H2025," the bank said.

The bank reckoned that shortages in palm, sunflower, and rapeseed oils are expected to drive CPO prices higher, with these three oils accounting for 52.3 per cent of global oils and fats consumption, according to Oil World.

AmInvest also projects that the European Union (EU) will increase purchases before the EU Deforestation Regulation (EUDR) takes effect at the end of 2025, which should prevent a sharp decline in CPO prices in 2H2025.

The bank further forecasts that Malaysia's CPO production will ease to 18.8 million tonnes in 2025 from 19 million tonnes in 2024, based on a lower oil yield of 3.3 tonnes per hectare.

"We expect Malaysia's CPO production to be modest in 2025 following a bumper 2024 harvest fueled by favourable weather and improved worker productivity," it added.

AmInvest also highlighted potential labour shortages in 2025 due to the Malaysian government's freeze on foreign worker recruitment.

"The Malaysian government has not yet announced the new labour quota. However, we believe the labour shortage may be less severe than in 2021/2022, as some companies have recruited more workers than required," it added.

The bank has upgraded its outlook for the plantation sector to 'overweight' from 'neutral', with KL Kepong as its top pick.