1. Weekly News

European Union

EU's Deforestation Regulation Challenging Palm Oil Industry

The European Union's Deforestation Regulation (EUDR), which targets reducing deforestation-linked products, is challenging the palm oil industry. The EUDR will come into effect on December 30, 2024, and requires assessments of seven commodities, including palm oil. It also categorizes oil palm as a high-risk crop, with criteria including deforestation-free production, resource traceability, and legal production activities. To ensure sustainable supply chains, palm oil-producing countries such as Indonesia and Malaysia must take steps to adhere to the EUDR.

Indonesia

India's Palm Oil Imports Surged by 41% MoM in Apr-24 Due to Competitive Prices

Indonesia's palm oil exports declined by 25.43% year-over-year (YoY) in Feb-24, amounting to 2.17 million metric tons (mmt) compared to 2.91 mmt in Feb-23. The main reason behind this drop in exports is the lower demand due to the competitive pricing of alternative oils, such as sunflower and rapeseed oils, in the global market. Additionally, high soybean oil stocks have further impacted the demand for palm oil worldwide.

Despite the decline in exports, palm oil consumption in Indonesia increased by 3.3% YoY to 1.86 mmt in Feb-24. Furthermore, estimates from the Indonesian Palm Oil Association (IPOA) suggest that the country's crude palm oil production was 3.88 mmt in Feb-24, and the stock levels of the product rose to 3.26 mmt, raised by 7.59% YoY.

Malaysia

Malaysia Warns Against Discriminatory Labels on Palm Oil Products

The Minister of Plantation and Commodities in Malaysia has warned retailers, distributors, and importers regarding the use of discriminatory labels on palm oil products. The warning includes a fine of up to USD 52.7 thousand (MYR 250 thousand) for any parties that violate the laws. Furthermore, the Royal Malaysian Customs Department has stated that they will stop the entry of products with discriminatory labels against oil palm into the country. The warning was released after a convenience store in Putrajaya sold ice cream with 'No Palm Oil' labeling.

2. Weekly Pricing

Weekly Palm Oil Pricing Important Exporters (USD/kg)

Yearly Change in Palm Oil Pricing Important Exporters (W18 2023 to W18 2024)

Indonesia

The price of palm oil decreased by 1.35% week-on-week (WoW) in Indonesia, at USD 1.46 per kilogram (kg) in W18. Indonesia's palm oil industry faces challenges amidst efforts to promote sustainability and environmental concerns. The emergence of substitutes like Palmless, a natural yeast fermented product highlights environmental advantages and adds pressure to traditional sunflower oil producers. In addition, the implementation of the EUDR impacts palm oil imports. Despite these challenges, Indonesia's palm oil industry must prioritize sustainable practices to maintain competitiveness amid shifting market dynamics and growing global concerns over deforestation and climate change.

Malaysia

Palm oil prices in Malaysia decreased by 3.53% WoW to USD 0.82/kg in W18. Malaysia's inventories are forecasted to decline in May-24, reaching their lowest level in a year due to increased local consumption during festive periods and competition from other edible oils, particularly sunflower oil. However, recent price corrections may attract fresh buying from destination markets, offsetting some of the decline.

Thailand

Thailand's palm oil prices dropped to USD 0.87/kg, a 2.25% WoW decrease. Alongside Indonesia and Malaysia, Thailand faces potential disruptions in palm oil production due to early signs of El Niño-induced hot and dry weather. Analysts suggest that these conditions could lead to water stress in palm oil-producing regions, such as Sabah, Malaysia, resulting in reduced yields. This adds to existing challenges like under-fertilization and labor shortages experienced in recent years, further impacting palm oil production in Thailand.

3. Other Outstanding Price Anomalies

The price of Palm oil in Burma wholesale markets decreased by 16.25% YoY to USD 1.63/kg in Apr-24. However, the price increased slightly by USD 0.03/kg MoM compared to USD 1.6/kg in Mar-24. After a sharp 35.32% MoM decrease in Nov-23, the prices have remained stable since Dec-23.

The price decline in Myanmar can be attributed to the reduced cost of imported palm oil. From Feb-24 to Mar-24, palm oil futures decreased significantly due to the competitive prices of rival vegetable oils such as soybeans and canola. In Myanmar, palm oil consumption is around 1 mmt annually, while the local production is only 400 thousand mt. The country must import over 600 thousand mt to meet the local demand. Therefore, wholesale prices are greatly influenced by global prices.

However, the recent price fluctuation has made palm oil more affordable and competitive than other edible oils such as soybean and sunflower. Furthermore, edible oil consumption is projected to improve in May-24 and Jun-24. As a result, palm oil prices in Myanmar are unlikely to drop further.

4. Actionable Recommendations

Adapt to EUDR

Palm oil-producing countries like Indonesia and Malaysia must prioritize compliance with the EUDR to maintain access to the EU market. This entails investing in sustainable palm oil production practices, including deforestation-free production, resource traceability, and legal production activities. Collaboration with industry stakeholders, government agencies, and environmental organizations is essential to develop and implement sustainable palm oil certification programs and standards that align with EUDR

Diversify Export Markets and Product Offerings

In response to declining demand for palm oil in certain markets like the EU, palm oil-producing countries should diversify their export markets and product offerings to reduce dependence on traditional markets and mitigate the impact of regulatory challenges. Exploring opportunities in emerging markets in Asia, Africa, and Latin America by promoting value-added palm oil products, such as sustainable and certified palm oil, palm kernel oil, and oleochemicals, for various industrial and consumer applications is recommended

Address Labeling and Perception Issues

Addressing labeling and perception issues related to palm oil products is essential. Promoting transparency, responsible sourcing, and ethical production practices can mitigate consumer concerns. Educating consumers about the benefits of sustainable palm oil production and consumption, including its role in poverty alleviation and economic growth, while highlighting efforts to address environmental and social concerns associated with palm oil production helps build trust and confidence in the industry.