Palm oil outlook to improve this year

This is written by my colleague Zaidi Isham Ismail.

KUALA LUMPUR: Although crude palm oil (CPO) prices have been hit hard this year; falling to a five-year low, its prospects are expected to improve due to a recovering global demand, biodiesel uptake and rising health awareness. 

Malaysian Palm Oil Council chief executive officer Tan Sri Datuk Dr Yusof Basiron said it is a natural cycle for palm oil prices to go up and down due to ever changing supply and demand situation. 

"I beg to differ with them. Although there are challenges this year, it is not confined only to palm oil. Other oils such as soybean oil and sunflower oil, their prices have also softened due to higher production anticipated this year. 

"As for Malaysian palm oil, we will see slightly better output this year and better exports. Indonesia has embarked on their biodiesel B15 program and Malaysia will implement the B7 program nationwide this year, which will see more demand for palm oil. 

"We can also expect prices to stabilise at between RM2,300 and RM2,600 a tonne. So, it is not all that gloomy," said Yusof. 

He added the drop in petroleum prices by 50 per cent has affected the prices of all commodities including palm oil. Prices of soyabean oil in America have also dropped due to excess production which has also led to the dampening of soyabean prices dragging along that of palm oil. 

"But a low CPO price will result in higher demand and it is set to rise again, of which the low soyabean and palm oil prices will also affect production and the tightening of the market will cause prices to rebound once again.” 

Yusof said the sector's performance this year will be better than previously as MPOC aggressively promote Malaysian palm oil and its related products. 

“We will go to existing markets and new ones. This is done through our various promotional series such as blending and packaging of palm oil in opaque bottles.” 

He said the council is also working hard to help the industry sell better in China, Russia, Pakistan, Central Asian countries and even the US. 

Demand for palm oil is rising everywhere in the world, of which there is a rise in population of some 80 million a year and palm oil plays a big role in supplying food to this rising world population. 

Yusof said in the US, Europe and Australia, palm oil has become handy as it is the perfect substitute for the harmful trans fat — a health threat to the global population. 

He said Malaysia, which is the world's second largest palm oil producer, is also ramping up cooperation with Indonesia at all fronts to enhance and bolster the industry such as development of the new market access for this commodity around the world. 

Malaysia and Indonesia hold bilateral meetings on palm oil, cocoa, pepper and jathropa on a yearly basis to strengthen the competitiveness of these soft commodities. 

"The current issues facing both countries that need to be addressed immediately are low prices of CPO and declining export figures — a rare situation we are experiencing now considering the fact that prices are always correlated to uptake as low prices usually stimulate a higher uptake. 

One factor that can explain this situation is a bumper harvest of soyabean, leading to a higher production of its oil, thus bringing prices of both commodities down. 

Nevertheless, Malaysia will be meet up with Indonesian stakeholders to find ways to strengthen the CPO prices and boost uptake. 

"We have a few proposals in mind and will discuss these with our Indonesian counterparts.” Yusof said. One such suggestion is to reaffirm biodiesel mandate so that the CPO stock can be reduced, thus stabilising prices. 

"Malaysia and Indonesia are beefing up bilateral cooperation from time to time. Through the respective ministries, we meet whenever possible to tighten our cooperation and maximise production for the benefit of all," he added.