Global palm oil fundamentals reflect bullish price outlook

The recovery of palm oil production remains limited and will continue to be suppressed, says expert


GLOBAL palm oil supply-demand fundamentals are expected to keep prices high this year as production is expected to remain tight, while demand from buyers like China is high due to the need to replenish its depleted reserves.

ISTA Mielke GmBH (oil world) ED Thomas Mielke said the recovery of palm oil production remains limited and will continue to be suppressed until issues involving labour shortages at plantations are resolved.

He said palm oil has become the most important vegetable oil, accounting for 32% of the world’s production of 17 edible oils and fats, despite its plantation covering only 8% of the total edible oil cultivation.

“Palm oil production has lost its growth momentum. After the setback last season, the recovery in palm oil production this season did not bring the level back to two years ago where the production was at a historic high.

“It is unprecedented as the growth is considerably less than what we have been expecting,” he said at the Palm and Lauric Oils Price Outlook Conference and Exhibition 2021 held virtually yesterday.

As supply of the world’s palm oil is expected to remain tight, Mielke projects palm oil price to hover at around US$950 (RM3,923.03) in 2021, supported by the anticipated prolonged restriction in production and planters’ cultivation practices which have seen fertilisers usage being cut down.

“Palm oil production has only recovered by 3.2 million tonnes this season. It is a very limited recovery. Indonesia’s production was up by about 3.3 million tonnes and Malaysia’s production continued to decline by 400,000 tonnes this season.

“The low opening stock at the beginning of the season is curbing the growth in global palm oil supply to only 700,000 tonnes in the current season. It is unusually small,” he said.

Mielke added that the surge in crude palm oil price has triggered a global rationing of edible oil consumption.

“Palm oil prices are currently at a premium of about US$400 over Argentina’s soy oil. We have to go back 10 years ago to see a similar trend.

“The high premium is unsustainable and requires producers to ration demand and create higher demand for other edible oil,” he said.

Cargill Investments (China) Ltd China CNF business director Ryan Chen said China, the largest palm oil importer, is expected to import between 6.7 million tonnes and 7.1 million tonnes of palm oil in 2021.

“Given the tightness in China vegetable oil reserve and palm’s competitiveness, we expect China’s olein imports at around 5.1 million tonnes to 5.5 million tonnes.

“Assuming stearin imports at 1.6 million tonnes, the total palm oil imports would be around 6.7 million tonnes to 7.1 million tonnes.

“Forward coverage is mainly until May 2021. Negative import margin, high inverse and high flat price are the reasons for the low coverage,” he said.

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