Expert expects palm oil prices to decline soon, spurring demand
18/12/2024 (CNBCTV18) - Palm oil prices, which have surged 23% this year, are likely to ease in the coming months, potentially alleviating pressure on industries heavily reliant on the commodity, according to Sandeep Bhan, CEO of SD Guthrie International Trading.
He expects the drop in prices to help stimulate demand, which has been weak in recent months.
Palm oil prices, he noted, have maintained a record premium of over $100 per metric tonne against soybean oil—a spread not seen in four decades.
Bajoria attributed this premium to seasonal lower production of palm oil and an abundant soybean harvest, which is driving down soybean oil prices.
The sharp rise in palm oil prices has dampened demand across industries globally.
Palm oil , a key ingredient in food products, detergents, cosmetics, biofuels, and packaged goods, has seen reduced buying interest due to its high costs.
Bajoria pointed out that exports from Malaysia, a major supplier, have declined as buyers remain hesitant to pay the premium price. “Demand is there, and buyers are there, but they’re unwilling to pay $250 above the alternatives,” he explained.
The elevated prices have taken a toll on companies which use palm oil derivatives extensively in its soap manufacturing.
In a recent regulatory filing, Godrej Consumer Products Limited (GCPL) stated that palm oil prices have increased 20-30% year-on-year, significantly affecting the soaps category, which contributes roughly one-third of the company’s standalone revenue.
To offset these costs, the company has raised prices, reduced product sizes, and scaled back trade schemes. These measures, however, have impacted inventory levels in wholesale and household channels.
On the biofuel front, Bhan said that Indonesia’s biofuel story is here to stay, emphasising its lasting impact on the market.
Indonesia’s commitment to expanding biofuel production with its B40 program implementation remains on track for 2025, and the country is even considering moving to B50 in the coming years, he said.
Palm oil is a widely used ingredient across industries. In food, it enhances the texture and shelf life of products like ice cream and packaged foods. It’s also essential in detergents and cosmetics for smoothness and cleaning.
Additionally, palm oil is increasingly used in biofuels as a sustainable energy source.