THE plunge in palm oil prices has nothing to do with the new government, said analysts, rubbishing claims by Barisan Nasional lawmakers that Pakatan Harapan was clueless about managing the industry.

The analysts who study the global edible oils market said prices declined in 2018 due to a combination of high supply of crude palm oil (CPO) and weak demand from its biggest buyers.

Palm oil prices dipped to a three-year low in 2018 because of higher global stocks and weaker demand from major markets, such as India, although industry players are optimistic prices will rise this year despite near-term challenges.

The Malaysian Palm Oil Board (MPOB) forecasts that prices will lift in 2019 as stocks decline and demand rises from importing countries and also due to higher use of palm oil in biodiesels in Indonesia and Malaysia.

“India, the world’s largest consumer and importer of palm oil, saw its purchasing power weakened in 2018 when the rupee became the worst-performing major Asian currency, thus reducing exports to the country,” said LMC International head of Southeast Asia Julian Conway McGill.

“Meanwhile, palm oil harvests rose by five million tonnes in 2018, driven by new mature areas and higher yields from young estates,” McGill told a Malaysian Palm Oil Board industry outlook seminar recently.

In the same period, global palm oil exports fell by one million tonnes, although this was partly offset by a four million-tonne increase in demand for biodiesel, he said.

In 2018, the average CPO price declined nearly 20% or RM551 to RM2,232 – a four-year low – from RM2,783 in 2017, according to the Primary Industries Ministry. Average CPO prices in 2018 fell by 20% to RM2,232 per tonne.

McGill projected CPO prices to rise RM2,200-2,300 per tonne by June on slower production growth and higher exports but cautioned these factors would not reduce the current stock level dramatically.

CIMB Research regional head of agribusiness Ivy Ng said the Indian government’s reduction of import duties for CPO from 44% to 40%, and a 54% to 50% cut on refined CPO would help boost imports from Malaysia to 2.51 million tonnes.

Malaysia is the world’s second largest oil palm producer behind Indonesia, producing about 20 million tonnes of palm oil last year compared with the latter’s 43 million tonnes.

Ng said demand for palm oil for biodiesel could also boost consumption in Malaysia and Indonesia by two million tonnes and further reduce the stockpile.

The Indonesian government is looking at raising its biodiesel mandate from 20% to 30% by 2020 or earlier, while the Malaysian government is also looking to raise its biodiesel mandate from 7% to 10% starting February 1 and plans to raise this to 20% by 2020.

EU ban dampens recovery

A risk to CPO’s price recovery of RM2,400 per tonne, however, lies in the European Union’s plans to restrict palm-based biodiesel, which she said could reduce consumption in that region by up to 2.45 million tonnes.

According to the MPOB, the EU consumes about 11% of the world’s CPO.

In 2019, MPOB projects CPO production and exports to rise by 4% and 4.3% to 20.3 million and 17.2 million tonnes, respectively.

This, together with lower imports and higher domestic usage, is expected to reduce palm oil stocks by 22.4% to 2.5 million tonnes by year-end.

It expects CPO prices to rise above RM2,500 per tonne in 2019. This year will also see higher government-mandated use of B10 and B7 biodiesel, which reduces stocks.

Palm oil advocates, including Putrajaya, are lobbying the EU to reconsider its proposal and devise a fair method of assessing the true impact of palm oil and hopefully recognise the commodity as a sustainable option for biofuel.

European lawmakers have increasingly voiced concerns that palm oil use should be curbed as it indirectly emits greenhouse gases during planting and cultivation.

Last year, EU lawmakers approved measures to limit the use of palm oil in biofuels, ahead of an eventual ban in 2030.

The EU, where more than 60% of CPO imports are used for non-food products and biodiesel, has pushed back the ban on vegetable oil products in biofuels from 2021 to 2030.

France, however, has plans to curb imports by ending tax incentives for palm oil biodiesel, while Norway has already approved plans to ban biofuels containing palm oil from 2020. – February 6, 2019.