MARKET DEVELOPMENT
Slowing global CPO production
Slowing global CPO production
The Star Online (22/10/2020) - PETALING JAYA: The global palm oil production going into next year will likely be hampered by the labour shortage issues in Malaysia and poor yield growth in Indonesia, caused by low fertiliser application in the second half of 2018-2019.
These are among the challenges faced by top palm oil producers, said UOB Kay Hian Research (UOBKH) in a report based on its recent online session with commodity expert, Oil World executive director Thomas Mielke.
Mielke pointed out that the growth in palm oil production in Malaysia over the medium term will be limited by declining yields due to ageing trees and the lack of new planting areas.
After taking into account better rainfall and some yield recovery from the lack of fertiliser application in the second half of 2018-2019, he expects global palm oil production in 2021 to increase by 3.8 million tonnes year-on-year (y-o-y)
Meanwhile, the global palm oil consumption is expected to increase by 1.6 million tonnes y-o-y, factoring in a partial demand recovery from the Covid-19 impact.
Mielke said the stock-to-usage ratio for palm oil next year will be flat y-o-y due to the lower inventory carried forward from end-2020 compared with the end-2019 inventory.
UOBKH also said the world’s biodiesel production was better than expected, with Mielke revising his European Union (EU) production forecast upwards for 2020.
The reasons for the upward revision include higher demand for biodiesel from the shipping industry as well as lower imports of biodiesel from Indonesia and Argentina, which have pushed EU biodiesel production higher.
“Palm oil is being used as biodiesel feedstock in the EU in 2020 to replace used cooking oil (UCO). The UCO supply has fallen due to the shutdown of most restaurants.
“This is another key factor to watch for 2021, given that when the UCO market recovers, demand for palm oil may drop, ” said Mielke.
There is a probability of the EU reducing palm oil imports by 200,000 tonnes in 2021.
If Indonesia continues with its biodiesel mandate as planned for 2021-2022, this might give rise to the risk of a palm oil shortage for food consumption globally.
On the commodity prices, Mielke expects soybean to set the price director for global vegetable oils, including palm oil, going into 2021.
At the online session with UOBKH, Mielke noted that soybean prices are expected to trade higher until the first half of 2021, with the delayed planting in Brazil and the lack of selling interest from Argentina.
“This is expected to have a spillover effect, impacting other vegetable oil prices, ” he added.
Mielke expects both soybean oil and palm olein prices to average at US$820 per tonne and US$730 per tonne respectively between January and June 2021.
However, he was quick to add that his views might change “if rainfall arrives earlier in Brazil, Argentinian farmers kick off their sales and China cuts imports in view of the elevated prices.”
For UOBKH, it is maintaining its CPO price forecast at RM2,400 per tonne in 2020 and RM2,350 per tonne for 2021.
The research unit also said the plantation stocks might not react to the surge in CPO prices.
“This is because higher CPO prices will not translate into higher earnings.
“The earnings should factor in the erosion from higher operational costs, sustainability costs and additional taxes as prices move on the uptrend, ” it added.