Mixed outlook for palm oil sector forecast at POC2023

Palm oil prices are set to rise in the second half of this year but annual growth production in the sector is expected to decline, according to industry analysts at Bursa Malaysia Derivatives’ flagship Palm and Lauric Oils Conference & Exhibition (POC2023) held on 6-8 March in Kuala Lumpur, Malaysia.

Palm oil prices would improve in the second half of this year due to tightening supplies, while refined, bleached and deodorised (RBD) palm olein prices could increase to US$1,150/tonne on a free-on-board basis, Thomas Mielke, executive director of ISTA Mielke - Oil World, said.

Although palm oil production was likely to recover this year due to improving labour issues compared to 2022, Mielke added that “palm oil has lost its growth dynamics”.

Annual palm oil production growth in major producing countries was likely to slow to 1.9M tonnes or less in the 10 years to 2030 compared to an average annual growth of 2.9M tonnes in the decade to 2020, he said.

“Area expansion has slowed down considerably and insufficient replantings and management constraints are keeping yields below potential,” he added.

In addition, Mielke said palm oil exports from top producer Indonesia were also set to decline this year due to the country’s ambitious biofuel mandate.

There was also a threat of a new El Niño weather pattern in July/December and/or in January/June 2024, he said.

With forecasts of a new El Niño, weather was set to be the biggest factor for the palm oil market this year with prices reflecting the “vagaries of climate”, according to Godrej International director Dorab Mistry.

“A new El Niño could drive prices higher so as to destroy demand. Without El Niño, we can see lower prices after August,” Mistry added.

In addition, Mistry said Malaysian stocks could drop below 2M tonnes due to output disruptions caused by heavy rainfall and rising exports following Indonesia’s curbs on palm oil exports.

Meanwhile, Mielke also expected the “incredible” increase in canola production to slow down in 2022/23.

Although there had been a significant increase in the production of oils and fats, with consumption expected to jump by 5M tonnes in April/September, he was concerned that the sector was moving into a production deficit in the second half of this year.

“Global vegetable oil supplies are currently sufficiently large with world stocks about 3M tonnes above a year earlier, but this is likely to change from July or August onward,” he said.

The Argentine soyabean crop, which could be as low as 25M tonnes, was also a concern, he said.

“Severe dryness in South America has tightened world soyabean supplies in early 2023, with at least 20M tonnes lost so far in Argentina and 3M tonnes in Brazil.

“At the moment, palm, rapeseed and sunflower oils can compensate Argentine losses, but for how long?” Mielke added.