1. Weekly News

Indonesia

Indonesia's Palm Oil Production Expected to Decline in 2024

According to the Indonesian Palm Oil Association (GAPKI), Indonesia's palm oil production in 2024 is projected to decrease to a range of 52 million metric tons (mmt) to 53 mmt, down from 54.8 mmt in 2023. The decline is attributed to lower-than-normal rainfall in critical palm oil-growing regions, including Sumatra and parts of Kalimantan, during Jul-24 and Aug-24, negatively impacting the country’s palm production.

Malaysia

Malaysia’s Palm Oil Inventory Increased by 7.34% MoM in Aug-24

According to the Malaysian Palm Oil Board (MPOB), Malaysia’s palm oil stocks rose 7.34% month-on-month (MoM) to 1.88 mmt at the end of Aug-24, marking the highest level in six months. Crude palm oil production increased by 2.87% MoM to 1.89 mmt, while palm oil exports fell by 9.74% MoM to 1.53 mmt. The market is trading sideways due to a lack of clarity over the futures prices.

MPOC Calls on EU to Delay EUDR

The CEO of the Malaysian Palm Oil Council (MPOC) called on the European Union (EU) to delay the implementation of the European Union Deforestation Regulation (EUDR), set to take effect on December 30, 2024. The CEO believes the regulation discriminates against small farmers in developing countries and could add significant administrative costs, potentially excluding smallholders from the EU supply chain. The CEO also urged the EU to provide clear compliance guidelines, exempt smallholders, and accept the Malaysian Sustainable Palm Oil (MSPO) standard as a compliance tool. The MPOC believes the EUDR could cost the palm oil sector at least USD 650 million annually.

Malaysia’s Palm Oil Prices Expected to Rise in Oct-24

According to a senior analyst at commodity price reporting agent Fastmarket, Malaysia’s palm oil prices are forecasted to increase in Oct-24. This increase is attributed to improved price competitiveness against other oils, a stronger ringgit, and growing demand from China. In addition, if the La Niña phenomenon intensifies, Malaysia’s palm oil production could surpass 19 mmt in 2025, further influencing global market dynamics.

India

India Increased Import Tax on Edible Oils to Protect Local Farmers

On September 13, 2024, India declared a 20% increase in the basic import tax on crude and refined edible oils, effective September 14, 2024, to support domestic oilseed farmers. This change is anticipated to raise local edible oil prices, lower demand, and reduce palm, soy, and sunflower oil imports. With the Agriculture Infrastructure and Development Cess (AIDC) included, the total import tax on crude soybean, palm, and sunflower oils rose from 5.5% to 27.5%. In addition, the import tax for refined palm, soybean, and sunflower oils increased to 35.75% from 13.75%.

Brazil

Brazil Pushes EU to Delay EUDR

The Brazilian government requested the EU for a suspension of the EUDR, which restricts imports of food linked to deforestation. Set to take effect on December 31, 2024, the regulation aims to prevent products contributing to deforestation from entering the EU market. Brazil argues that the verification process is too complex, especially for small and medium-sized producers, making their exports unviable. The Brazilian Minister of Agriculture has set a deadline of October 1, 2024, for the EU to respond and is considering taking alternative measures to prevent the regulation from being implemented.

Germany

Germany Requests Six-Month Delay for EUDR

On September 13, 2024, Germany formally requested the EU to postpone the implementation of the EUDR. The request comes from concerns about the EUDR's potential impact on farmers and the forestry sector in Germany and other exporting countries. This appeal came just one day after Brazil made a similar request. Set to take effect at the end of Dec-24, the regulation would prohibit coffee, cocoa, soy, timber, palm oil, beef, printing paper, and rubber imports from areas deforested after Dec-20.

The concerns are not limited to Germany. Countries across Latin America, Asia, Africa, and even the United States (US) also expressed concerns over the administrative burden the EUDR could impose on farmers. Strict traceability and environmental monitoring requirements may be challenging for emerging economies that rely heavily on exporting agricultural and forestry products. The debate now revolves around balancing environmental protection and the economic realities producers face worldwide.

2. Weekly Pricing

Weekly Palm Oil Pricing Important Exporters (USD/kg)

Yearly Change in Palm Oil Pricing Important Exporters (W37 2023 to W37 2024)

Indonesia

In W37, Indonesia’s palm oil prices decreased by 0.99% week-on-week (WoW) to USD 1 per kilogram (kg), reflecting a year-on-year (YoY) increase of 12.22%. The MoM prices remained unchanged. The WoW price decline is due to the weak demand from the export markets. In addition, India’s decision to increase import duty on palm oil is expected to reduce its palm oil imports, which may hurt Indonesia’s exports. However, the decreased production due to insufficient rainfall in key palm-growing regions during Jul-24 and Aug-24 prevented the price from dropping further.

Malaysia

In W37, Malaysia’s palm oil prices increased by 1.08% WoW to USD 0.94/kg, rising from USD 0.93/kg in W36. The MoM price grew by 5.62%, while the YoY price increased by 17.72%. Solid futures prices support the weekly price increase despite a high inventory in Aug-24. In addition, the anticipated higher palm oil production in 2025 due to the La Niña phenomenon would positively impact Malaysia’s supply in the global market and influence prices. Moreover, the concerns over the EUDR will continue to affect market sentiment and trading dynamics. Many countries, including Malaysia, have requested the EU to delay the EUDR implementation due to concerns about its adverse impacts on small farmers.

Thailand

In W37, Thailand's palm oil prices remained unchanged WoW at USD 0.97/kg. However, it marks a MoM rise of 3.19% and a YoY increase of 16.87%. The MoM price increase in Thailand is influenced by global concerns over reduced production in Indonesia, which has impacted regional markets. In addition, Thailand has benefited from increased demand for sustainable palm oil, as many smallholders have adopted the Roundtable on Sustainable Palm Oil (RSPO) certification. This certification boosts local incomes and stabilizes domestic prices amid volatile global markets.

3.Actionable Recommendations

Diversify Export Markets

Indonesian, Malaysian, and Thai palm oil producers should diversify their export markets to mitigate the potential impact of India's increased import tax on palm oil. Producers can reduce their dependence on traditional markets like India by targeting countries with lower tariff barriers or where demand for palm oil remains strong, such as China or countries in the Middle East. This will help sustain export volumes and stabilize prices.

Invest in Drought-Resistant Palm Varieties

Given the decline in production due to lower-than-normal rainfall in critical regions, Indonesian producers should invest in drought-resistant palm oil varieties. By collaborating with agricultural research institutes, they can develop and plant palm trees that are more resilient to climate fluctuations, ensuring stable production in the future despite adverse weather conditions.

Expand Palm Oil Production Capacity

Malaysia should consider expanding its sustainable palm oil production by leveraging the anticipated rise in palm oil production in 2025, driven by the La Niña phenomenon. Producers can invest in processing facilities and storage to prepare for higher output, ensuring Malaysia can meet domestic and global demand and capitalize on potential price increases.

Sources: Tridge, Vinanet, Theprint,Theedgemarkets,PEefeagro, Mercado Do Cacau, UkrAgroConsult