W22: Palm Oil Update

In W22 in the palm oil landscape, Latin America is the region with the highest level of sustainability certification for palm oil crops in the world, with production concentrated in 12 countries. The leading producer is Colombia, which currently accounts for 6–7% of global production, followed by Guatemala, Brazil, Ecuador, and Honduras. Indonesia and Malaysia, located in Southeast Asia, produce 85% of global production. Indonesia is facing challenges in fulfilling legal requirements in palm oil plantations owned by independent smallholders. Out of 6.7M hectares of smallholder palm oil plantations, only 32 ISPO certificates have been issued to smallholders. Therefore, the Ministry of Agriculture is accelerating the certification of Indonesia Sustainable Palm Oil (ISPO), even though the ISPO certification completion target for smallholders is 2025. The Indonesian government voiced rejection of the EU over palm oil discrimination through the EU Deforestation-Free Regulation (EUDR) while meeting with Non-Governmental Organisations (NGO) and Civil Society Organisations (CSO) representatives in Brussels, Belgium, on Tuesday, May 30, 2023. The EUDR policy undermines all of Indonesia's efforts to solve problems related to climate change. In Indonesia, deforestation decreased by 75% between 2019 and 2020. Additionally, the country successfully brought down the area impacted by forest fires to 91.84%. Indonesia aims to replant 540K hectares of smallholder palm plantations by 2024 to maintain its palm oil production.

On Tuesday, May 30, Malaysian palm oil futures ended lower for a second consecutive session to log their worst day in 2 weeks. The benchmark palm oil contract FCPOc3 for August delivery on the Bursa Malaysia Derivatives Exchange slid 3.98% to USD 767.76/MT, the largest drop since May 16. This is due to significant palm and soybean oil losses in Dalian, as well as lingering concerns over May production increasing by 20% MoM and exceeding demand. On Wednesday, May 31, palm oil futures plummeted to an 8-month low, declining by 3% to USD 712.31/MT due to sluggish demand, weakness in related vegetable oil markets, and falling crude oil prices. However, on Thursday, June 1, palm futures rose 2.59% to USD 740.47/MT as Malaysian exports fell 0.8% MoM in April. After significant losses in early W22, palm oil futures rose by 3.39% to USD 764.37/MT on Friday, June 2, due to stronger competing oils and worries about the effects of El Nino. Additionally, Malaysian palm oil supply is set to soar as a labor crunch eases, paving the way for a bumper crop in the second half of 2023. Peninsular Malaysia and Sabah's output, which account for about 80% of the country's supply, may increase by at least 25% in the second half of the year compared to the same period in 2022.

Lastly, during the first half of the 2022/23 (November–April) marketing year, India's imports of vegetable oil rose by 21% to 8.1MMT, driven by increased shipments of refined palm oil, which reached 1.1MMT and accounted for 22% of the total palm oil imports. To address this, the SEA has proposed raising the duty difference between crude palm oil (CPO) and refined palm oil, with the duty on refined palm oil increased from the current level of 7.5% to at least 15%.