Heavy Rains to Tighten Malaysian Palm Kernel Oil (PKO) Supply, Push Prices Higher in Global Markets
31/12/2024 (ChemAnalyst) - Heavy rains anticipated in the month of December 2024 are expected to disrupt palm oil production in Malaysia, creating ripples across global markets for palm kernel oil (PKO). The Malaysian Palm Oil Board (MPOB) has projected a significant decline in crude palm oil (CPO) output due to adverse weather conditions. As PKO is derived from the same oil palm tree, a production shortfall is anticipated to tighten its supply, driving up prices in the international market.
Malaysia, a leading producer of palm oil and its derivatives, will likely face operational challenges in harvesting and processing palm fruit bunches, the raw material for both CPO and PKO. The downpours are expected to delay harvesting schedules, hinder transport logistics, and degrade the quality of harvested kernels. This will constrain the availability of palm kernels, the primary feedstock for PKO production, thereby reducing the output of this critical commodity.
The constrained supply coinciding with sustained global demand for PKO, used extensively in food production, cosmetics, detergents, and biodiesel is expected to trigger a notable price increase for PKO in December 2024 and early 2025. Analysts predict that refiners and manufacturers dependent on PKO will face elevated procurement costs, potentially prompting shifts in pricing strategies across industries.
Adding to the upward price pressures, Indonesia, another major palm oil producer, plans to roll out its biodiesel mandate (B40) in January 2025. This initiative will redirect a significant portion of palm oil toward domestic biodiesel production, further tightening the global supply of palm derivatives, including PKO. Import-dependent countries may struggle to secure sufficient volumes, intensifying competition and reinforcing higher price trends.
The impact of this weather-induced production shortfall will also extend to refining costs. Wet weather conditions are likely to increase kernel processing expenses due to logistical challenges and higher rates of spoilage. This will exacerbate the financial strain on producers, who may pass on the additional costs to buyers, compounding the price hike concerning the PKO.
Market analysts anticipate significant repercussions in regions heavily reliant on Southeast Asian imports. Food manufacturers in Europe and North America, major consumers of PKO for margarine and confectionery, may face supply chain disruptions. Similarly, the cosmetics and personal care sectors, which depend on PKO for its moisturizing properties, could struggle to maintain production without increasing costs.
To address these challenges, buyers might seek alternative sources or substitutes, but the scarcity of viable replacements and PKO's unique functional benefits make this difficult. Consequently, prices are expected to remain elevated in the near term, even as supply chains adjust to mitigate the shortfall.
Looking ahead, the global PKO market will remain under close observation as industry stakeholders evaluate the combined effects of Malaysia's production constraints, Indonesia's biodiesel policy, and fluctuating demand dynamics. While prices are expected to stay high through early 2025, potential relief could come from improved weather conditions, increased inventories, or demand- side adjustments in key industries. With supply tightening and demand remaining robust, prices are projected to rise, creating challenges for industries reliant on this versatile commodity and supporting further price variations.