Palm oil supply likely to be tight next year

Global output of palm oil is expected to grow by 0.2 million to 0.3 million in 2023 and 2024 – the lowest rate in four years, said Oil World's Mielke. — Reuters

NUSA DUA: Global palm oil output is likely to drop next year due to the impact from the El Nino weather pattern while demand from the edible oil and energy sectors is set to grow, supporting prices, leading industry analysts say.

Hot and dry weather is expected to continue into early 2024, worsening a steady downward trend in yields of palm oil from top producers Indonesia and Malaysia in recent years.

Global output of palm oil, which makes up a big chunk of the edible oil market, is expected to grow by 0.2 million to 0.3 million in 2023 and 2024 – the lowest rate in four years, said Thomas Mielke, head of Hamburg-based analyst firm Oil World.

That comes as global edible oil demand is seen growing by 5.6 million tonnes in the same season, he told participants at a conference in Bali.

The tight supply means palm oil prices should rise by at least US$100 per tonne in the next four to six months, Mielke said.

Benchmark palm oil futures on Bursa Malaysia are expected to trade between RM3,700 and RM4,500 per tonne between now and June, Dorab Mistry, the director of Indian consumer goods company Godrej International said at the conference.

Palm oil output from the world’s top producer Indonesia is seen dropping at least a million tonnes next year, while Malaysian output is seen unchanged, Mistry said.

Biodiesel-driven

Demand centres like India currently have high edible oil stocks, which led to a plunge in October imports, however, analysts in Bali said going forward, demand would be driven by the energy sector seeking palm oil for renewable fuel.

“The one major factor going to impact price-making in 2024 is, I call it the Big B, biofuel,” Mistry said.

Indonesia, the world’s biggest palm oil producer, is expected to see its domestic palm oil consumption for biodiesel exceed consumption for food for the first time in 2023, the Indonesia Palm Oil Association (Gapki) said.

“Again, in the next year, consumption for biodiesel will exceed food consumption,” senior Gapki official Joko Supriyono said.

Indonesia this year increased the mandatory mix of palm oil-based biodiesel in diesel to 35%, known as B35, from 30% previously.

Gapki expects Indonesia’s crude palm oil and kernel oil output to grow by around 5% next year but exports to fall by 4%, due to higher domestic consumption.

Meanwhile, Mielke warned that Indonesia’s declining trend of palm oil yields was “alarming” and had so far not been reversed.

“Replanting is running behind schedule, (and) age structure is deteriorating, which is a big challenge,” he said, adding that planters face challenges finding new land while meeting sustainability standards.

Indonesia launched a subsidised replanting programme for small farms in 2016 and aimed to replant around 2.5 million ha, but progress has been slow. — Reuters