Demand outpaces supply, likely to keep palm oil prices high


By Leela Landress Perez

The global palm oil market has seen extreme volatility over the last two years and remains elevated since prices began their ascent in June 2020. Global vegetable oil supplies fell overall during the Covid-19 pandemic, despite slow demand growth. The tightness was particularly evident for palm oil, which has the largest volume of production globally among vegetable oils.

Recent developments could help ease some of the supply scarcity in the palm oil market globally but increasing demand will counter any immediate price relief.

Malaysia is looking to ease its pandemic-driven labour crunch that has slowed its plantation and oleochemical industries by pushing ahead with the hiring of migrant workers. The country is expected to hire nearly 180,000 workers over the next six weeks, according to human resources minister M. Saravanan. The country reopened borders on 1 April and is transitioning to an endemic phase of Covid-19.

Malaysia froze the hiring of foreign workers for the past two years to stem the spread of Covid-19, leading to an acute labour shortage in the palm oil plantation sector and one of the reasons for the supply reduction and volatile prices.

Malaysia is the world’s second-largest palm oil producer after Indonesia.

Although palm oil production is forecast to see some recovery in 2022, prices are expected to remain elevated as output gains could struggle to keep pace with demand increases, especially as pandemic restrictions ease.

The US Department of Agriculture (USDA) raised its global palm oil output, trade and stock forecasts in its April Oilseeds: World Markets and Trade report. The USDA increased its global palm oil production forecast for the October 2021-September 2022 marketing year to 77.05mn t, up from 75.59mn t in its March report. Output reached 73.11mn t during the 2020-21 marketing year, according to USDA data.

The expected return of migrant workers to relieve Malaysia's plantation labour shortage boosted Malaysian production projections to 19mn t for 2021-22, up from the 18.7mn t forecast in March.

Indonesian production for 2021-22 was revised up to 45.5mn t from 44.5mn t in March, with milder weather conditions forecast for the key Indonesian palm oil-growing regions of Kalimantan and south Sumatra.

The USDA sees increased Chinese buying driving an expansion in palm oil trade. Chinese imports for 2021-22 are forecast up to 7.1mn t from 6.7mn t in the March report and the 6.82mn t it received in 2020-21, as China moves to bolster dwindling vegetable oil stocks through imports amid weaker domestic soybean crushing margins.

But higher sales prices and Indonesian export tariffs for palm oil continue to limit Indian imports compared with the previous year, with a shift in demand towards soft oils in the price-sensitive market. The USDA kept its Indian palm oil import forecast for 2021-22 flat from March at 7.75mn t in the April report, down from the 8.41mn t recorded in 2020-21.

Indonesia is now expected to end 2021-22 with palm oil stocks at 7mn t, up from 6.5mn t in the March USDA forecast and 5.98mn t in 2020-21. Malaysia’s ending stocks are forecast up to 1.82mn t, up from the 1.62mn t prediction in March and at the end of 2020-21.


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