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Growth in global palm oil supply, demand expected
Published on: Monday, February 02, 2015

Kuala Lumpur: Global supply of palm oil – the world's most tradeable vegetable oil – will be marginally higher this year with continued demand expected from traditional markets like China, India, Pakistan and the European Union (EU), say industry experts.Total production from top producers Indonesia, Malaysia and Thailand is expected to hit 61.8 million tonnes this year, up 4.3pc from 59.3 million tonnes last year.

Global palm oil export will increase by 3.3pc to 43.3 million tonnes this year, according to forecast by independent vegetable oils and fats research group, Oil World.

Top producer Indonesia will continue to lead the growth in the global palm oil supply this year, contributing about 32.7 million tonnes from its expanding mature oil palm areas, it adds.

During the period 2013-14, Indonesia produced 31 million tonnes of palm oil and exported about 21 million tonnes, says Indonesian Palm Oil Association Executive Director Dr Fadhil Hasan.

Lately, there have been dramatic changes to the composition of Indonesia's palm oil exports, which are now dominated by production in downstream operations in the republic as well as the increase in domestic biofuel consumption.

Meanwhile, palm oil production in Malaysia is expected to increase slightly to 20.1 million tonnes this year, due to the prolonged dry weather in the early part of 2014 that will result in oil palm stress this year thus affecting fresh fruit bunches.

According to latest statistics on the Malaysian palm oil industry, crude palm oil (CPO) production in Malaysia rose to 19.67 million tonnes in 2014 (19.2 million tonnes in 2013) – thanks to the higher oil extraction rate and new production areas particularly in Sarawak.

The 10 major export destinations for Malaysian palm oil last year were China, India, Pakistan, the EU, the Philippines, Vietnam, the United States, Japan, Iran and Benin, a republic in West Africa. These markets accounted for 12.59 million tonnes or 73pc of Malaysia's total palm oil exports last year.

On the other hand, Thailand is expected to experience poor palm oil output this year at about 2.1 million tonnes because its oil palm areas mainly in the southern region were badly hit by the recent floods.

Indonesia and Malaysia are still the key determinants of the world's palm oil supply – both countries account for about 85pc of the total world production, says industry expert Ling Ah-Hong of Sabah-based Gan Ling Sdn Bhd.

Ling, who is formerly IJM Plantations Bhd Executive Director as well as former COO Plantations of Hap Seng Consolidated Bhd, says that improving palm oil age in Indonesia is the key to future supply growth.

Malaysia, however, will need to step up on its replanting activities by about 150,000ha to 200,000ha annually to boost its palm oil supply growth, he says.

For this year, Ling estimates palm oil production from Indonesia to hit 32.4 million tonnes, Malaysia 20.3 million tonnes and Thailand 1.8 million tonnes.

South Asian markets namely India, Pakistan and Bangladesh will continue to support palm oil by increasing their imports this year, says Oil World.

It adds that palm oil is expected to continue to dominate India's imports of oils and fats this year despite the recent increase in import duty on edible oils in the country.

Analysts have pointed out that the growth rate of palm oil import into India could be lower if the price discount between palm oil and its rival soybean oil continues to narrow further.

In recent months, the price discount between palm oil and soybean oil has narrowed significantly to between US$50 and US$60 per tonne compared with the traditional price discount of about US$150 per tonne in the past one decade, according to plantation industry expert M.R. Chandran.

For India, total oils and fats consumption is expected to be in the range of 21.5 million tonnes this year, of which imports account for 12.5 million tonnes due to the expected increase in the influx of palm oil and soybean oil. Palm oil imports into India is expected to reach 8.3 million tonnes this year, compared with 7.7 million tonnes in 2014, adds Oil World.

Pakistan will also see its palm oil imports increasing by about 5pc-7pc this year from 2.4 million tonnes estimated in 2014, Oil World says. Pakistan's intake of palm oil will also hinge on the commodity's price discount and that of other vegetable oils such as soybean oil, Oil World adds.

Another major palm oil importer this year is the East Asian market namely China, South Korea and Japan.

The palm oil intake in the East Asian market is expected to continue to increase this year due to the current lower price which makes the commodity an attractive option.

Malaysia is the largest supplier and exporter of palm oil to this region, while China remained the largest importer of oils and fats in the East Asian region last year, says Oil World.

As for the EU market, Oil World points out that imports of oils and fats are expected to be lower at 10.3 million tonnes this year (10.7 million tonnes in 2014). This is in line with anticipation of lower consumption at 31.5 million tonnes this year.

According to the European Commission, about 40pc of the vegetable oils are used for the EU biofuel production.

With the anticipated lower rapeseed output in Europe due to potential impact from a strong El Nino/La Nina effect in 2015-2016, there will likely be lower demand from the biodiesel sector in the EU.

On the other hand, LMC International Ltd economist Dr Joseph Feyertag says at a recent seminar that there is still good demand for palm oil in the Eastern European markets.

The largest markets for palm oil are found in the Black Sea region, namely Russia, Slovakia, Romania, Bulgaria and Ukraine, he says.

"Outside of this region, palm oil seems to be considerably under utilised," he adds.

Moving forward, he believes that palm oil still has a long way to go in Eastern European markets.

Meanwhile, industry expert Ling has cautioned on the possibility of an emerging weak El Nino phenomenon in the first quarter 2015 but "it is unlikely to reduce the growth in global palm oil supply this year."

For Malaysia, the uncertain weather conditions in recent months could result in mixed impacts on the palm oil production in the peninsula as well as Sabah and Sarawak.

An El Nino-induced drought could trigger multiple lagged effects on production such as bunch failure, floral abortion and preferential male flowers formation – with effects lasting up to 24 months later.

Hence, production could be reduced by up to 30pc depending on the severity of the drought, adds.



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