by BERNAMA / pic by TMR FILE
THE supply of foreign workers in oil palm estates amid the ongoing flooding in some of the states in Malaysia, the high cost of fertilisers and the impact of Omicron are three key factors that may threaten the production recovery of crude palm oil (CPO) in 2022, according to the Council of Palm Oil Producing Countries (CPOPC).
The tight CPO stocks, however, are in line with the limited supply of vegetable oils globally which analysts have projected to push the commodity higher at least for the first half of the year (1H22).
The easing of labour shortage would only materialise in the first quarter of 2022, with palm oil output to recover after June 2022, they said.
“LMC International Ltd highlighted that the global palm oil supply will only see minimal growth in the 2019-2022 period due to year-end floods and labour shortage in the country,” the council said in its outlook report.
The CPOPC also noted that in its webinar held two months ago that the majority of the speakers had expected palm oil prices to remain buoyant in 1H22 and trend lower in the 2H.
The Indonesian Palm Oil Association, for example, expects palm oil to stay above US$1,000 (RM4,180) per tonne in 1H22 and potentially for the rest of 2022.
LMC International also reported that Indonesia and Malaysia are in a long La Nina period in which the Oceanic Nino Index (ONI) is “more negative than minus 0.5.” The pattern of the ONI curve since 2020 echoes that of 2010-2011, with a La Nina weakening and then returning, it noted.
“If 2012 is taken as a guide, La Nina should end in 2022. A rising ONI is correlated with rising output growth, and a falling ONI is linked to slowing output growth. This is especially true for Indonesian production,” the report said.
“With La Nina, there would be twin blows from heavy rainfall at estates and El Nino drought in the following years. In view of the apparent link between the ONI and output growth, in Indonesia, LMC International predicted there will not be much palm oil production growth in 2022.”
The US National Oceanic Atmospheric Administration has predicted a 95% chance for a weak La Nina lasting through February 2022.
The council said the high cost of fertilisers due to supply chain disruption, higher demand, rising freight and input costs would result in smallholders lowering their fertiliser applications this year, potentially reducing future output in the years ahead.
It noted that fertiliser is another major cost component after labour cost for palm oil producers, which is about 30% to 35% of the ex-mill cost.
“Companies would continue to feed their oil palm trees this nutrient despite the high price but they may not receive the ordered volume due to supply constraints and uncertain shipment arrangements.
“Based on industry sources, the estimated fertiliser imports for 2021 are 60% to 65% of the usual annual requirements.
“As the logistics bottleneck is unlikely to ease anytime soon, 2022 could see even lower fertiliser imports. “Smallholders may be tempted to give less fertiliser to their trees again.
“The impact of reduced fertiliser usage back in 2018 and 2019 is showing today as the yield recovery is weaker than normal. As a result, Indonesia and Malaysia may not be able to deliver much output growth in 2022,” the CPOPC said.