KUALA LUMPUR (Feb 12): Crude palm oil (CPO) prices are expected to remain suppressed due to normalising production and an abundant supply of vegetable oils in both Malaysia and Indonesia, says RAM Ratings.

"CPO prices will likely soften to between RM2,300 and RM2,500 this year," the ratings agency said in a statement today, adding that production is expected to outstrip demand growth.

"Despite the anticipated healthy demand growth for CPO this year, it is anticipated to lag supply growth, exacerbating already high inventory levels of 2.7 million tonnes in Malaysia and 4 million tonnes in Indonesia," RAM said.

This is despite last year's yield recovery and palm output having fallen below market expectations in both Malaysia and Indonesia.

RAM noted that Indonesia's CPO exports had rebounded by 21% in 2017 due to robust demand from India, the European Union (EU), China, Pakistan and the US.

"With palms expected to fully recover this year, production is likely to normalise," RAM said, noting that the Malaysian Palm Oil Board projects local output to rise 3% to 20.5 million tonnes in 2018 while the Indonesian Palm Oil Association expects a 10% growth in the production of CPO and palm kernel oil.

The EU Parliament's proposed ban on the use of palm oil in biofuel production may affect CPO prices in the interim, the ratings agency added.

However, the wider price premium for soybean oil, a key CPO rival, is expected to support CPO prices, it added.