Weak demand, delayed biodiesel mandate to lift palm oil stockpile


WEAKER export demand for crude palm oil (CPO) and the delay in the B20 biodiesel mandate adoption to advance the use of palm oil in the transport sector could lift the country’s palm oil stockpile to more than two million by the end of the year.

Malaysian Palm Oil Association CEO Datuk Mohamad Nageeb Abdul Wahab said such inventory levels would further dampen the palm oil prices, which have been in a declining trajectory since the beginning of the year.

“The issue now is how much we can sell as our concern is on the stock level. We are not going to see the level dropping less than two million tonnes this year, unless sales pick up and prices stabilise.

“Indonesia already mentioned that its B40 mandate will not be happening soon and as for Malaysia, the B20 mandate is being put on hold,” he said in a web conference yesterday.

Malaysian Palm Oil Council in a recent forecast has a more optimistic view on the palm oil inventory level, estimating it will slightly reduce to 1.9 million by December.

Malaysia’s palm oil stock levels have been fairly low at the beginning of the year, recording 1.75 million tonnes in January.

However, it jumped to two million in April due to the increase in output and plunging demand amid the Covid-19 pandemic.

Recovery in palm oil prices likely to remain depressed until the revival of global demand for food and non-food items, said Sime Darby Oils (SDO) MD Mohd Haris Mohd Arshad.

“We are seeing demand driving the whole crisis as opposed to the supply as the palm oil sector is looking fairly tight on the supply side and not suggesting a rally happening soon.

“This is the first time we see a dent in the food segment. For the non-food demand, palm oil has taken more shares in the biodiesel market over the years and it was expected to be bullish due to Malaysia’s biodiesel mandate,” he said.

Mohd Haris said the palm oil industry could experience another bleak year as planters are finding ways to keep costs down amid the low price environment.

“Unfortunately, the palm oil industry will see another round of painful cost-cutting measures.

“If we continue to see the declining prices, it will have an impact on production, which in the long term would not be able to catch up with consumption,” he said.

Mohd Haris added that for SDO, which manages the downstream operation for Sime Darby Plantation Bhd, its performance in the second quarter (2Q) showed a sign of strain due to the plummeting prices and lower sales.

“The industry had a good start in 2020, but it did not last very long. For SDO, sales in 1Q were robust and could have affected the stockpiling, and our sales in Europe were the strongest they have ever been, including in South-East Asia.

“But we should see signs of strains in 2Q while the prices are plummeting and India being absent as our exporting market,” he said.