KUALA LUMPUR – Crude palm oil (CPO) prices are likely to remain high as demand for edible oils have increased amid the limited global supply of vegetable oils, said Datuk Seri Zuraida Kamaruddin.
The plantation industries and commodities minister said in a statement that she expects CPO prices to remain elevated despite weak exports and an increase in palm oil stockpile.
“The fact that palm oil stockpile increased for the first time since October 2021 by 11.5% month-on-month to 1.64 million tonnes in April 2022 driven by higher output (+3.6% to 1.46 million tonnes) and weaker exports (-17.7% down to 1.06 million tonnes) should not be a cause for concern.
“This is because palm oil stockpile will likely dip in May 2022 on the back of seasonally lower crude palm oil production (arising from the Ramadan month) and stronger exports (following the Indonesian government’s recent move to widen its export ban on raw materials for cooking oil).
“On broader terms, the soft exports in April could be misleading as we believe international demand for edible oils, which include palm oil, is far from weak. April prices may be lower than March but remained at unprecedented levels,’’ she added.
Indonesia had yesterday rescinded its export ban on palm oil which began on April 28 and will end on May 23, a move that could ease the global edible oil supply and ease pressure on food prices.
Nevertheless, preliminary data from AmSpec Agriculture Malaysia indicated that palm oil shipments alone have surged by 40.32% during the first 10 days of May on account of Indonesia’s absence from the global export market, a weak ringgit and widening palm discounts to bean oil.
For context, CPO prices had surged past the RM7,000/tonne mark to hit a period peak of RM7,516/tonne following the ban.
Zuraida stated that the edible oil supply is expected to stabilise by the fourth quarter of 2022 (4Q22) but the prospect of recovery is more likely in 2023.
However, palm oil prices are likely to remain elevated until mid-2023.
Similarly, CPO prices are also affected by the strict Covid-19 lockdowns which hampered palm oil shipments to China and “demand destruction” due to high prices.
Exports to China dipped by 50.8%, Pakistan by 90.3% and the European Union by 20.2%.
Moving forward, Zuraida predicted a bullish market for the time being, as the soft exports in April could be misleading, seeing that the international demand for edible oils, including palm oil, is far from weak.
Despite April prices being lower than in March, it remained at unprecedented levels.
Among the reasons behind the CPO’s elevated prices are:
i. The tight supply of other edible oils such as soybean, rapeseed and sunflower oils are strong when compared against palm oil. The prospect of recovery for these vegetable oils is more likely in 2023, leaving palm oil prices elevated till then.
ii. Despite some “demand destruction” due to very high prices, the overall market for palm oil is expected to remain robust. Indonesia’s struggle to meet domestic needs indicate the strength of the international market for palm oil.
iii. China is poised to increase its palm oil demand later in the year as its economy is only gradually reopening from the Covid-19 pandemic. Similarly, demand from the EU is likely to rise following the disruption to its traditional supply of sunflower and rapeseed oil from Ukraine and Russia.
iv. The Russia-Ukraine conflict has also pushed up the prices of hydrocarbon fuels, creating a latent or “hidden” demand for biofuels if vegetable oil prices were to fall sufficiently. – The Vibes, May 20, 2022
