Malaysia’s palm oil price to decline further amid labour shortages


PALM oil price in Malaysia is expected to decline further, despite Malaysia recording a benchmark crude palm oil (CPO) at US$1,500 (RM6,600)/tonne on average in the first half of 2022 (1H22), according to Fitch Ratings Inc.

Previously in the 1H22, price soared due to the export restrictions by Indonesia, weak production prospects in Malaysia and concerns over the supply of substitutes (such as sunflower seed oil) as a result of the Russo-Ukrainian war.

However, since early June, CPO price has declined by more than US$300/tonne following Indonesia’s policy shift in efforts to encourage exports by reducing export levies.

Fitch Ratings analyst Akash Gupta said that CPO price is expected to continue falling below US$1,000/tonne in the 2H22 with higher global vegetable oil production.

In terms of Malaysia’s monthly CPO production, the first five months of 2022 remained unchanged due to worsening labour shortages on farms, as well as the effects of floods at the beginning of the year. However, US Department of Agriculture forecasts Malaysia’s palm oil production to increase by 11% overall over 2022-2023.

Meanwhile, Malaysia’s palm oil inventory for the first five months remained below levels as compared to previous years due to unchanged production and strong exports. Despite the situation, Malaysia’s palm oil exports increased by 6% in the first five months of 2022, benefiting from the Indonesian government’s measures to curb exports.

The ratings agency also expects that Malaysia’s labour shortages will continue for up to another six months.

“However, the situation should be resolved by early 2023 unless there is another major Covid-19 outbreak and border restrictions are re-imposed,” the report stated.