Brighter year for palm oil
29/12/2022 (New Straits Times) - OUR palm oil industry is looking at a better performance for this year which we foresee will continue into 2023.
Several factors may attribute to the expected better performance, particularly, a stronger demand for palm oil.
The ongoing Russia-Ukraine conflict has been disrupting the sunflower oil supply chain globally, causing a surge in the demand for palm oil as a replacement for sunflower oil. Rising prices of soybean oil and Brent crude oil in the world market are also contributing factors that may impact the performance of the Malaysian palm oil.
As such, we expect the price of crude palm oil (CPO) to average at RM5,100 a tonne for this year, 15.7 per cent higher compared to RM4,407 a tonne in 2021.
The average price of CPO for January-November 2022 was RM5,167 a tonne, an increase of 18.4 per cent compared to RM4,363 a tonne for the same period in 2021.
to the high CPO production season, rising palm oil stocks and declining soybean oil prices.
Hence, we foresee the price of CPO to stabilise and average at RM3,800 a tonne in 2023. This is in anticipation of higher palm oil production, weather conditions which are expected to improve especially in the second half of next year and expected higher availability of supply of other major vegetable oils.
Meanwhile, soybean oil prices which are expected to be low due to the high production in Brazil and the United States of America may also support the price of CPO.
Additionally, the strengthening of the ringgit against the US dollar may also affect the price of the CPO.
Malaysia's ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) on Sept 30 2022 will encourage demand for palm oil products as it broadens the country's access to new markets such as Canada, Mexico and Peru, which are not covered by any existing Free Trade Agreement (FTA).
Based on Cost Benefit Analysis on the potential impacts of the CPTPP, upon ratification and implementation of the CPTPP, tariffs for palm oil products are now reduced from a maximum of six per cent for Canada, five per cent for Mexico and nine per cent for Peru to lower tariffs based on the tariff elimination schedule.
Apart from higher palm oil exports to the markets, the elimination of tariffs improves the Malaysian palm oil competitiveness in the CPTPP member countries.
Exports of palm oil and other palm-based products for January-November 2022 increased by 1.3 per cent to 22.43 million tonnes compared to 22.14 million tonnes in the same period of 2021.
The higher price of palm oil during that period has boosted total export revenue by 31.8 per cent to RM120.43 billion from RM91.38 billion in January-November 2021. Exports of palm oil alone rose slightly by 0.8 per cent to 14.25 million tonnes in January-November 2022 compared to 14.14 million tonnes in the previous corresponding period.
As such, palm oil export revenue surged 31 per cent to RM80.22 billion from RM61.26 billion in the same period of 2021.
Meanwhile, CPO production is expected to increase slightly by 2.1 per cent to 18.50 million tonnes for this year as compared to 18.12 million tonnes in 2021.
We expect a slow recovery of palm oil production due to the issue of labour shortage in the oil palm plantations, especially for fresh fruit bunches (FFBs) harvesting and unloading activities.
CPO production is projected to further increase to 19 million tonnes for 2023 due to the expected increase in the productive areas, especially in the Peninsular Malaysia and Sarawak.
Additionally, the workforce situation may stabilise next year as foreign worker applications are being approved in stages.
CPO production for January-November 2022 stood at 16.83 million tonnes, an increase of one per cent compared to 16.67 million tonnes achieved in the same period of 2021. This was attributed to an increase of 2.8 per cent in processed FFBs to 86.51 million tonnes in January-November 2022 compared to 84.17 million tonnes in the same period last year.
In anticipation of higher production, we expect the ending stocks of palm oil at 1.85 million tonnes, up by 0.24 million tonnes or 14.9 per cent compared to 1.61 million tonnes in December 2021.
In 2023, ending stocks of palm oil are projected at two million tonnes, higher than that in 2022 due to the expected higher supplies of other major vegetable oils including palm oil.
Generally, we expect the performance of the Malaysian palm oil industry to be better next year than that of 2022.
* The writer is director-general of Malaysian Palm Oil Board