This article first appeared in The Edge Financial Daily, on November 26, 2015.

KUALA LUMPUR: RAM Rating Services Bhd (RAM Ratings) foresees the price of crude palm oil (CPO) to average at between RM2,200 and RM2,400 per tonne next year, compared with RM2,174 per tonne in the 10-month period in 2015.

In a statement yesterday, the rating agency said apart from a weaker ringgit, the effect of recent unfavourable weather conditions on palm oil production and a pickup in biofuel demand when regional biodiesel mandates gain traction, could alleviate inventory woes and support CPO prices.

Furthermore, RAM Ratings said Indonesia’s higher biofuel-content mandates, which have been implemented successfully as planned, are envisaged to mop up about five million tonnes of palm oil.

“To this end, we remain mindful of the republic’s evolving policies and minimal track record of implementation certainty, although some progress has been made.

“The Indonesian Estate Crop Fund has reportedly collected four trillion rupiah (RM1.2 billion) since its establishment in July 2015, a portion of which has been disbursed to support the republic’s B15 ambitions and government research,” it added.

Elsewhere, RAM Ratings noted that Indonesia’s energy and resource ministry had also engaged companies to supply up to 1.8 million kilolitres of fatty-acid methyl ester to state-owned energy company, Pertamina, for the period between November 2015 and April 2016.

However, RAM Ratings said the lacklustre demand growth amid a slower economic environment in key consuming countries is anticipated to continue to weigh on CPO prices.

It also pointed out that direct competition posed by an abundant supply of soybean oil — a close substitute for CPO — is further expected to keep CPO prices in check.