PALM OIL PRICES IN FUTURE

WHAT ARE THE TRENDS OF PALIM OIL PRICE in future? It was an important topic discussed in both from Malaysia and Indonesia as world leaders in these industries. There are reports in which Indonesia and Malaysia push biofuel to offset palm oil price downturn. The falling prices hurt companies and their risks loom from El Nino and EU deforestation law. Due to the weak prices for palm oil so called as a worsening outlook and a backlash against the commodity over deforestation concerns are pushing Indonesia and Malaysia as the world's biggest producers of palm oil to boost domestic use through developing jet fuels and expanding biodiesel programs. Widely used in Indonesia and Malaysia for cooking oil and also for applications such as personal care and cleaning products, palm oil is an important sector in Southeast Asia's largest economy with the industry employing millions of workers. Indonesia is the world's largest exporter, and it is the country's top export commodity in Indonesia apart from coal. Palm oil is similarly important in neighboring Malaysia as the world's second-largest producer and exporter. The benchmark crude palm oil (CPO) price in Malaysia ranged from RM3,500 (USD755) to RM4,200 per tonne between January and June 2022. That is compared to the all-time high in April 2022 of almost RM7,000 per tonne, following the launch of Russia's invasion of Ukraine in which sent prices of all edible oils skyrocketing. That run-up in prices for palm oil, traditionally the cheapest among vegetable oils, was a continuation of one caused by pandemic-related disruptions since late 2020. This report elevated inventories in India and mainland China as an expected increase in global soybean production through the 2023/24 season, and the upcoming September-October period of peak palm fruit yields. This article in "Anim Agriculture Technology" presents the palm oil price trends in future.

The BMI forecast an average price of RM3,800 per tonne for Bursa Malaysia-listed third-month palm oil futures contracts in 2023, down from the average of RM4,910 per tonne last year. It also forecast prices will continue to fall, reaching RM2,400 a tonne in 2027 on par with a five-year pre-COVID pandemic average of close to RM2,420 per tonne. The declines have hurt incomes of major palm oil producers after many enjoyed record profits in 2021 and 2022. In Malaysia, a state-owned conglomerate Sime Darby Plantation reported that second-quarter net profit fell by 54% to RM380 million from the same period in 2022. As for FGV Holdings, also government linked company did saw its plantation sector plunge 97% to RM13.76 million mainly due to the lower average CPO price compared to the previous year and on top of lower CPO sales and 37% higher CPO production costs. In Indonesia, the net income at top producers Sinar Mas Agro Resources and Technology, Astra Agro Lestari and Salim Ivomas Pratama declined 85% rwcorded as 54% and 71% respectively, in the first half of 2023, to Rp284.3 billion (USD18.7 million), Rp367.6 billion and Rp128.4 billion respectively. Indonesia is running trials to use sustainable aviation fuel derived from palm oil in aircraft.  Political issues also weigh on producers. A European Union regulation on deforestation-free supply chains entered force on June 29. S&P Global said in August that combined with the EU's renewable energy directive, which limits the use of palm oil for biofuel in EU markets starting in 2030 as the new law is "seen as another layer of restrictions by palm oil producing countries." Indonesia and Malaysia account for about 85% of global palm oil trade while the EU is typically the third largest importer after China and India. Indonesia, Malaysia and the EU have reportedly agreed to form an ad hoc task force to hash out issues related to the implementation of the deforestation regulation. To deal with the market and political pressures, Jakarta and Kuala Lumpur are seeking new ways to utilize the commodity. State-owned airline Garuda Indonesia in August announced the start of a static test on a "sustainable aviation fuel," or "bioavtur," on an engine used in its Boeing B737-800 NG fleet, with ground and flight tests to follow. Garuda's bio jet fuel is jointly developed by Indonesian state oil company Pertamina and the Bandung Institute of Technology.

Another report releases a condition last month in which that Indonesia expanded its mandatory B35 biodiesel program as it was produced by Pertamina as a nationwide, after a partial introduction in February 2022. B35 has a higher palm oil content in the diesel mix than the B30 launched in early 2020. Indonesia is next targeting B40 for 2030. Indonesia is pushing the biodiesel program expansion as palm oil prices have fallen from the record highs. Malaysia is also exploring its own biofuel efforts. The Malaysian Palm Oil Board and state energy giant Petronas signed an agreement in August to study using cooking oil and palm oil waste as sustainable aviation fuel. In the second phase of the National Energy Transition Roadmap launched late last month, the government included a B30 biodiesel mandate on heavy vehicles by 2030 after rollout by 2025. According to the Yusuf Rendy Manilet as an economist at Indonesian think tank Center of Reform on Economics, sees Indonesia's biofuel policy as ultimately viable. The Indonesian government's goal is to reduce dependency on imports of oil by leveraging biofuels in order to improve the trade balance," Manilet told Nikkei Asia. In the long run there are more biofuels becoming available and oil imports reduced as fuels will become more affordable and lead to improving purchasing power. BMI said increasing biofuels uptake could pose a "major upside risk" to its price outlook for edible oils overall. "An increase in the rate of diversion of palm oil to the manufacture of blended biofuels as the greater diversion of alternative edible oils, such as soy oil, to biofuels in which it would tighten the supplies of edible oils for food consumption. It added that the developing El Nino weather phenomenon, marked by drier and hotter weather in Southeast Asia, poses another major upside risk to its palm oil price outlook over the next 12 to 18 months although "much depends on the eventual strength of the El Nino event itself." BMI said the 2014-16 El Nino, one of the most severe of modern times, led to double-digit annual declines in percentage terms for crop yields in both Malaysia and Indonesia over the 2015-16 season in which resulted in palm oil prices rising by 1,000 ringgit per tonne during the period. 

In other report titled 'Palm oil prices may rise above RM4,300 in 2024 on supply, output woes said MPOC' relevant with this topic. In a local news reported that Malaysia's crude palm oil prices will trade at RM3,700 - RM4,200 a metric ton in the second half of 2023, and will remain supported in the long term, state agency Malaysian Palm Oil Council (MPOC) said on Tuesday. Heading into 2024, there is a strong possibility that prices may rise above RM4,300 a metric ton, MPOC deputy director Mohd Izham Hassan said in a webinar. This is due to market uncertainties including those surrounding Black Sea sunflower oil supply and Malaysia's palm oil production that has remained below expectations. Production in the world's second-largest producer during the first half of 2023 was nearly 3% lower than in the same period last year, Mohd Izham added. Malaysia's benchmark crude palm oil futures have declined 7% so far this year. They traded around RM3,882 on Tuesday, as traders weighed a decline in rival soft oil prices and supply concerns. On demand he forecast largest buyers India and China to import a combined total of 16.5 million tonnes of palm oil by December 2023, up from 15 million tonnes in 2022. ASEAN and MENA regions will also see higher demand for palm oil due to insufficient domestic production and competitive price of palm oil. Thanks...

By,

M Anem,

Malacca,

Malaysia.

(October 2023).