Source: USDA
Source: USDA

A combination of stagnating global palm oil production and higher biodiesel mandates are likely to reduce supplies of the oil this year, leading to further price hikes, according to a Reuters report of the Palm and Lauric Oils Conference & Exhibition (POC2024) held in Malaysia this month.

Palm oil output by leading producers Indonesia and Malaysia is likely to either rise marginally in 2024 or decline from last year’s level due to ageing plantations and a lack of planted area expansion, according to analysts quoted at the event held on 4-6 March in Kuala Lumpur.

“Vegetable oil prices will be supported by the prospective global production deficit,” leading industry analyst Thomas Mielke, executive director of Oil World, was quoted as saying.

Palm oil inventories in the world's top producer Indonesia were low and stockpiles in the second largest producer Malaysia were declining, he added.

On 6 March, the benchmark Malaysian palm oil contact reached its highest level since late July at MYR4,075/tonne (US$869), taking the gains in 2024 to almost 10%, the report said.

In contrast, production declined for the last two years, Reuters wrote.

Annual palm oil production growth in 2023/24 was expected to be at its lowest level in four years at around 0.2M-0.3M tonnes, Mielke said, forecasting a MYR3,800-4,300 price range in the next three months.

According to Godrej International director Dorab Mistry, while Indonesia’s 2024 palm oil production would be at least 1M tonnes lower than last year, Malaysia’s production was likely to be unchanged.

“We are not able to expand acreage … and the age profile of the trees is adverse,” Mistry was quoted as saying.

“The fresh fruit bunches’ yields are falling and unfortunately, the application of technology in the palm (industry) has been the slowest if you look at the entire world oil scene and oil complex.”

Against a backdrop of declining palm oil production, Indonesia was expected to step up the country’s compulsory biodiesel blending mandate, the report said.

“There is a possibility of the new incoming government increasing B35 to B40,” Fadhil Hasan, head of the foreign affairs division at the Indonesian Palm Oil Association (GAPKI), was quoted as saying.

Meanwhile, biodiesel production in Malaysia could increase this year if the 20% biodiesel mandatory programme was implemented in more areas, the Malaysian Biodiesel Association said.

According to latest US Department of Agriculture (USDA) data reported by Germany’s Union for the Promotion of Oil and Protein Plants (UFOP), global palm oil production is set to rise by just under 2% in 2023/24 to 79.5M tonnes,

Although Malaysian production had been seasonally curbed, the USDA’s latest estimate projected an output of 19M tonnes, which would be up 613,000 tonnes on the previous year.

“It remains to be seen whether, and to what extent, the prognosis will be revised downwards in the coming months,” the UFOP said.

Global consumption of 78M tonnes – an increase of 5% compared to the previous season – was expected to be fully met by global output this season, the association said.

However, with demand rising at a faster rate than production, a reduction in stocks was forecast.

By the end of this marketing season, stocks were expected to decline by around 4% to approximately 16.7M tonnes.