Palm oil production in the world’s two top producers – Indonesia and Malaysia – is projected to reach new highs in 2018 as the countries recover from the poor harvests caused by El Niño.
In Indonesia, output was estimated to reach 37.8M tonnes, marking a 3.6% increase from the 36.5M tonnes reported in 2017 by the Indonesia Palm Oil Association, said Reuters on 28 January.
Malaysian output was projected to rally approximately 3%, rising from the 19.9M tonnes reported last year by the Malaysian Palm Oil Board to 20.5M tonnes.
In addition to yields recovering from the 2015 El Niño dry weather pattern, production would also see an increase due to more young trees reaching production maturity, thus increasing harvested areas.
“We’ve gotten over the effects of the El Niño. 2018 will be a more normalised year for yields, which should increase from last year as earlier replanting will take out some of the lower yielding areas,” an anonymous Indonesian planter told Reuters.
According to the news agency, production was likely to be slow until March, but a peak was forecast for the third quarter (Q3) based on seasonal trends.
“Year-on-year, growth will be strong in Q1, in the range of double digit growth, but will normalise to single digit growth in Q2 and the second half of the year,” Alan Lim, plantations analyst at MIDF Research, said.
Benchmark prices for palm oil were projected to fall 7% from the 2,807 ringgit (US$722.44) level in 2017 to 2,620 ringgit (US$676.3) in 2018, partly due to competition from other edible oils.
“Global soft oil supplies are expected to reach a record high on the back of large soyabean, rapeseed and sunflower seed crops across major producing regions. [This] will provide competition for palm oil demand and curb potential price rallies,” a Rabobank report read.
Demand from palm oil’s two largest importers – China and India – could also be limited as China was expected to import a record amount of soyabeans this year, while India palm oil import growth potential was weighed down by the availability of other oils as well.
However, rising petroleum crude oil prices – up by more than 40% since mid-2017 – could boost demand for palm oil from biodiesel producers as higher fossil fuel prices made biodiesel more competitive, Reuters reported.