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THE oil palm industry has played an important role in the economy.
The planted area expanded from 55,000ha in 1960 to 5.849 million hectares last year.
In tandem with the area expansion, the production of palm oil also grew from less than 100,000 tonnes in 1960 to 19.516 million tonnes last year.
This expansion, especially in the 1960’s, was encouraged by the diversification strategy of the government, which recognised palm oil as a complementary crop to rubber.
The oil palm industry contributes 4.67 per cent to the country’s gross domestic product (GDP), and 46.6 per cent to the agricultural GDP.
Total exports of palm oil products were 23.97 million tonnes in 2017 with an export revenue of RM77.85 billion.
Palm oil export earnings stood at RM46.12 billion.
The global market is expected to grow with the world’s population and income, increasing biofuels production, accelerating economic growth, especially in developing economies, and growing applications.
Despite these achievements, palm oil continues to receive criticism for alleged links to deforestation, climate change, health effects and market restrictions in terms of tariff and non-tariff trade barriers.
This has led to lower demand for palm oil-based products and export market access.
Added to these challenges is agricultural commodity price volatility and instability.
Price volatility is almost an inherent feature of commodity production due partly to inelastic supply and demand.
Crude palm oil (CPO) prices dropped to three-year lows in November and December last year amid high stock levels in Southeast Asia and weak demand.
Stocks were reported at a record high of three million tonnes. Exports dropped by 12.9 per cent month on month to 1.38 million tonnes as buyers — such as China, the European Union, Pakistan and the Philippines — bought fewer Malaysian palm oil products.
Last year, the average CPO price was RM2,267 per tonne against RM2,817 a tonne in 2017.
Other than fundamental factors of supply, demand, and stocks, palm oil prices are also affected by the price movements of soya bean oil, which competes for a share of the global vegetable oil market, and influenced by crude oil because the edible oil is also used as feedstock to make biodiesel.
The prices rebounded in January and last month to RM2,037 and RM2,100.50, respectively, compared with November and December prices of RM1,830 and RM1,794.50, respectively.
The general opinion is that the prices of crude palm oil and other oils depend on the outlook for palm stocks.
It is predicted that stocks will fall till mid-year, in line with seasonal production trends, which will lift the crude palm oil prices, especially if Indonesia maintains its heightened pace of biodiesel use.
Crude palm oil prices are expected to rise to between RM2,200 and RM2,300 per tonne by June on a seasonal decline in stocks.
Prices will also increase as India, one of the largest importers of Malaysian palm oil at 2.514 million tonnes last year, reduced import duties on crude palm oil from some countries, including Malaysia and Indonesia, to 40 per cent from 44 per cent and on other palm oil to 45 per cent from 54 per cent.
For this year, though supply of CPO will remain ample due to steady production growth in Indonesia, consumption will grow by a strong five per cent year on year, at the fastest rate recorded since 2013.
With low stock levels and firmer soya bean oil and crude oil prices, CPO prices are forecast to be higher this year than last year with at an average price of RM2,300 per tonne.
– March 17, 2019 @ 10:58pm
2019 appears to be starting in the right direction for the Malaysian oil palm industry. In recent years, the Malaysian palm oil industry has faced rising challenges of restrictions in export and worldwide demand. The leading issue would of course be the European Union’s growing anti-palm oil sentiment, driven by allegations of deforestation and the industry being environmentally unfriendly.
Although Malaysia and other oil palm producing nations have stepped up their efforts to dismiss these allegations, the EU seems poised to limit and eventually phase out palm oil, especially in vehicles and machinery. As such, palm oil sales have to be focused elsewhere.
China: One of the Largest Palm Oil Market
China has been purchasing palm oil from Malaysia for a long time. With the EU market under threat, Malaysia has managed to convince China to increase their purchases. In part, China’s increasing demand of oil palm is due to a drop of soybean oil demand and the need for more vegetable cooking oils.
In addition to just cooking, palm oil in China will be used in other industries such as the chocolate making industry, food processing industry, pharmaceuticals, soaps and more. Currently, China is the second largest importer of palm oil after India.
China buys 50% more Palm Oil in 2019
On March 4th, 2019, Malaysian Minister of Primary Industries, Theresa Kok witnessed the signing of purchase intent documents involving three Chinese companies which will buy products from four Malaysian companies.
These purchases amounted to USD 891 million or about RM 3.5 billion. The following is a breakdown of the purchase deals, which total up to about 1.62 billion tons of palm oil:
- Yantai Tianmao Edible Ltd to purchase 100,000 tons of RBD palm stearin from Sime Darby Plantation
- Yihai Kerry (Shanghai) International Trade Co. to purchase 1.3 million tons of RBD palm olein from PGEO Marketing Sdn
- Yizheng Fangshun Industry Ltd to purchase 120,000 tons of RBD palm stearin from Cacao Paramount Sdn, unit of Teck Guan Group
- Yizheng Fangshun to purchase 100,000 tons of RBD palm olein from SOP Edible Oils
More Room To Grow
At the signing of the purchase intents during the Malaysia-China Palm Oil Business Forum, China’s ambassador to Malaysia, Bai Tian mentioned that there is still room for more purchases. He stated that China has not placed a ceiling on the amount of palm oil and palm oil products that China can import.
Among the new fields that China is looking into developing is biofuels and this of course calls for and increased supply of palm oils in the country. In total, China’s import of palm oil in Malaysia is set to grow about 50% year on year in 2019, as compared to the year before.
In addition to boosting exports of palm oil to China, Malaysia is also taking steps to cap the amount of land opened for oil palm growth, as an important step to allay fears in the EU about deforestation.
The increased demand for palm oil and declining reserves are serving to gradually increase and stabilize oil palm prices for 2019, which is good news for small holders in Malaysia. If you’re a smallholder, this is the time to work hard and make hay while the sun shines.