Driven by the food and biodiesel industries, global palm oil production has grown exponentially in recent years. Industry experts, producers, refiners and traders gathered in Kuala Lumpur last month for the 26th Annual Palm & Lauric Oils Conference & Exhibition to share ideas and present views on the challenges and opportunities faced by the palm oil industry in 2015 and beyond.

Global palm oil production is dominated by Indonesia and Malaysia, and has been for many years. In Indonesia, Food and Agriculture Organisation of the UN (FAO) data shows that between 1994 and 2004 alone, palm oil production increased by over 400%. More recently, in 2014, Indonesia and Malaysia produced 30 million tons and 20 million tons of crude palm oil (CPO) respectively. These figures represent some 85-90 per cent of total global palm oil production. As well as meeting domestic needs, much of this production is destined for export markets.

Earlier this year, a local newspaper in Kuala Lumpur reported that in February Malaysia’s palm oil exports dropped by 18.5% to 971,640 tonnes, the lowest since 2007. Despite an apparently bullish market, these results demonstrate that there is some weakness in the marketplace. In February, lower demand from major importers such as China, Pakistan, the European Union and the United States impacted exports.

Some concerns raised by the palm oil experts at the Conference were the drop in crude oil price, recent floods on the east coast and in some of states in Peninsula Malaysia that affected harvesting of fresh fruit bunch (FFB), and the reduction of high palm oil inventory by the continuing implementation of biodiesel programs in Indonesia and Malaysia.

The drop in crude oil prices in 2015 has had a significant impact on the price of CPO. Weak demand from China due to a slowdown in its economy, the availability of alternative cheap cooking oils, such as soya bean, to replace palm oil, and high palm oil stocks have also contributed to the palm oil price slide. As a result, in December 2014, we saw prices plunge by almost 20%.

At Palm & Lauric Oils, palm oil experts described 2015 as "the year of two halves for CPO price". With lower inventory and production caused by recent floods in Malaysia, palm oil should perform better in the first half of this year. In the second half of the year, the palm oil price is predicted to weaken due to a build up in palm oil inventory, unless the Malaysian and Indonesian governments introduce diesel blends, B10 and B15, respectively. That would help to ensure price stability for the crude palm oil price this year.

Indonesia and Malaysia may lead the palm oil production league, but Africa, the third largest consumer for palm oil is keen to develop its production capacity. Though eager to increase production, Africa is facing numerous barriers and challenges, for example, finding arable land for planting, competition from biofuel growers, logistical inefficiencies/bottlenecks and investment in infrastructure.

In India, palm oil demand capital of the world, consumption, and consequently demand, has been growing over the last 25 years. Indeed, imports of palm oil to the country have doubled in the last 10 years alone. Palm oil is the country’s leading edible oil and the shortfall between domestic supply and demand has only widened in recent years.

These growing markets, combined with removal of the threat of restrictive plantation ownership regulations in Indonesia, offer a glimpse into a future of growth and diversified production. The competing need for palm oil for use as an edible oil and in the production of bio diesel should continue to drive demand and continued increases in production into the future.

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For more information, please contact:

Goh Beng Wah
Division Manager
SGS (M) Sdn Bhd
Wisma SGS, Lot 603,
Leboh Raja Lumu,
Kawasan Perindustrian
PKNS, Pandamaran
Klang, Selangor
t: +603 3165 2318