W4: Weekly Palm Oil Update

Indonesia

Oil Palm Farmers in Indonesia Supports the Government’s Move to Create Its Own Price Reference (Jan 25)

The Indonesian Palm Oil Growers Association (Apkasindo) fully supports the government's move to create its own palm oil commodity exchange. The general chairman of Apkasindo, Gulat Manurung, said that since the 1990s the development of the palm oil industry has been increasing rapidly in Indonesia. However, despite being the world's largest producer of palm oil, Indonesia has not become the world's reference for palm oil price developments. According to Gulat, the existence of the Indonesian palm commodity exchange will also make it easier for farmers and palm oil business actors to obtain real prices that are in accordance with market conditions.

Indonesia’s 2022 Palm Oil Exports Fell 8.5%, With Output Sluggish (Jan 25)

Indonesia's palm oil exports fell 8.5% last year because of a volatile regulatory environment and sluggish output that is expected to continue in 2023, the Indonesia Palm Oil Association (Gapki) said. The world's top palm oil producer exported 30.8M MT of palm oil products in 2022, down from 33.7M MT a year earlier. To control soaring prices of domestic cooking oil last year, the government implemented various changes in palm oil export policy, including a three-week export ban starting in late April. A slight drop in palm oil production last year amid rising domestic consumption in the energy sector also contributed to the lower exports.

Indonesia Should Not Fear Losing the EU’s Palm Oil Market (Jan 27)

World’s largest palm oil producer Indonesia should not fear losing the EU, as the Southeast Asian country still has a lot of other markets to export its top commodity to, according to the Indonesian Palm Oil Association. Gapki data show Indonesia exported 3.75M MT of palm oil products to the EU-27 in the first 11 months of 2022. This marked a 14% decline from the same period in 2021. The Gapki export data encompassed crude palm oil (CPO), biodiesel, and oleochemicals, as well as refined, bleached, and deodorized palm olein (RBD). And while the EU continues to remain discriminatory against Indonesian palm oil, exports to the US are on the rise. The US now climbed two spots to be the third-largest importer of Indonesian palm oil last year. Indonesia shipped over 2M MT of palm oil products to the US from Jan. to Nov. 2022, up by 15% from last year’s figures of 1.792M MT. Gapki attributed the rising palm oil export to, among others, biodiesel use in a number of US states.

Indonesia Wants Palm Oil Exporters to Trade On Local Exchanges (Jan 27)

Indonesia, the biggest palm oil supplier, is studying rules that would require exporters to trade at least some of their oil on local exchanges before shipping it overseas in order to improve control and data transparency. The goal is to have a reference price for a specific palm oil product from the exchanges which can be used to calculate taxes and export levies, said Didid Noordiatmoko, the acting head of the Commodity Futures Trading Regulatory Agency. It would also offer more clarity on supply and demand, helping efforts to ensure the local market is well supplied, he said. Surging domestic prices forced the government to suspend palm oil exports temporarily last April, causing turmoil on global and local markets, something Jakarta would not want to repeat. The country, one of the largest commodity exporters, is more generally trying to increase control over pricing and supply, and seeking to move up the value chain in terms of overseas sales.

Malaysia

Malaysian Palm Oil Prices Seen Falling 23% In 2023 as Output Rises and Indonesia Keeps Supply Tight (Jan 23)

Malaysian palm oil prices are set to fall for the first time in three years in 2023 amid a mild recovery in production, but will likely remain above pre-pandemic levels as Indonesian policies constrict global supplies. Benchmark palm prices will average USD 894.64/MT (3,800 ringgit) in 2023, down 23% from last year’s record average of USD 1155.97/MT (4,910 ringgit), according to the median estimate of a poll of 18 analysts and those in the industry. Top producers, Indonesia and Malaysia are expected to see a marginal rise in production just as global demand is forecasted to rise, with China relaxing its COVID-19 restrictions and India increasing imports. China and India are the world’s biggest palm oil buyers. Production in Indonesia is forecasted to rise 2.4% to 48M MT this year, from an estimated 46.87M MT last year. Malaysia’s production is seen at 19M MT, up 3% from 18.45M MT last year, as the government takes steps to alleviate a damaging labor shortage.

Malaysia and Indonesia to Discuss Crude Palm Oil (CPO) Benchmark Pricing (Jan 26)

Malaysia will hold a meeting with the Indonesian government to discuss the republic’s intention to have its own crude palm oil (CPO) benchmark price, said Deputy Prime Minister and Plantation and Commodities Minister Datuk Seri Fadillah Yusof. He said the matter needs to be discussed jointly, as Indonesia’s plans will affect the entire oil palm industry chain, not just Malaysia, but also globally. The deputy prime minister said the meeting to resolve this matter beneficially for all parties had been proposed to take place in the second week of February.

Malaysian Palm Oil Posts Biggest Loss in Six Weeks on Weaker Rival Oils (Jan 26)

Malaysian palm oil futures posted their biggest loss in over six weeks on Jan 25, in the first trading day after Lunar New Year holidays, tracking weakness in the US soy oil and as lower export volumes weighed. The benchmark palm oil contract FCPOc3 for April delivery on the Bursa Malaysia Derivatives Exchange fell 3.57% to USD 881.19/MT (3,753 ringgit) by afternoon closing, its worst day since Dec. 12. The Malaysian exchange was closed on Monday and Tuesday for the Lunar New Year holidays.

EU Palm Oil Ban Will Not Impact Malaysia as the Block Imports Relatively Low Amount of the Commodity (Jan 27)

The European Union’s (EU) import ban on palm oil and other commodities will not affect Malaysia, said Heriot-Watt University professor and palm oil industry researcher Dr. Denny K.S. Ng. Malaysia’s main export countries are India and China, and the EU as a bloc imports much lower amounts of Malaysian palm oil. Ng said the EU reached an agreement on Dec 6 last year to ban the import of palm oil products, which have been identified as “drivers of deforestation” if they come from deforested land after Dec 31, 2020. Reacting to the move, Deputy Prime Minister and Commodities Minister Fadillah Yusof said it will affect free and fair trade, and adversely impact the global supply chain.

Malaysia May Stop Exporting Palm Oil to EU (Jan 27)

In December 2022, EU officials passed legislation banning the trade in palm oil products or other items linked to deforestation unless importers can demonstrate that production of the products does no damage to the forest. The EU is currently a major importer of palm oil and the new law has provoked outcry from Indonesia and Malaysia, the world's top producers. Most recently, Malaysian Deputy Prime Minister Fadillah Yusof said that they and Indonesia will soon discuss this EU law. Environmental activists have blamed the palm oil industry for rampant deforestation in Southeast Asia's rainforests, even though Indonesia and Malaysia have created mandatory sustainability certification standards for all their plantations.

Crude Palm Oil Futures in Malaysia End Higher on Jan 27 on Concerns Over Weaker Output (Jan 27)

Crude palm oil (CPO) futures contract on Bursa Malaysia Derivatives ended higher on Jan 27 amid expectation of a weaker output, coupled with stronger soybean oil and crude oil prices. Palm oil trader David Ng said a weaker output may lower overall excess stock in the country. The benchmark Brent crude oil price was up 1.20% to US 88.52/barrel. Anilkumar said Malaysia has kept its palm oil export tax unchanged at 8% for February from January, while revising the reference price to USD 916.60/MT (RM3,893.25) from USD 915.72/MT (RM3,889.52) in January.

Palm Extends Gains on Bargain Buying, Ends the Week Higher in Malaysia (Jan 28)

Malaysian palm oil futures rose for a second straight session on Jan 27 on bargain hunting amid a recovery in rival oils, ending the week with modest gains. The benchmark palm oil contract FCPOc3 for April delivery on the Bursa Malaysia Derivatives Exchange jumped 3.41% to close the day at USD 921.95/MT (3,910 ringgit), adding to Jan 24, 0.75% gain. Palm gained 0.46% for the week. Palm advanced on continued bargain buying, while the market eyed the narrowing discount with competing oils, said Anilkumar Bagani. 

Philippines

FPI Seeks DA Probe Against Illegal Use of Imported Palm Olein (Jan 24)

The Office of the President (OP) has referred to the Department of Agriculture a petition by the Federation of Philippine Industries for the government to conduct an investigation over alleged illegal use of imported palm olein that has been robbing the government of billions of pesos in revenues while hurting the domestic coconut industry. Arranza welcomed the response of the Office of the President to his letter as a big boost to the campaign against smuggling and other forms of illicit trade that are hurting the economy and making millions of Filipino workers and farmers suffer.

India

India’s March Quarter Palm Oil Imports Could Drop 29% As Stocks Rise (Jan 25)

India's palm oil imports could drop 29% in the March quarter from the previous quarter as record inventories and weak demand prompt refiners to curtail purchases and focus on liquidating stocks. Lower purchases by the world's biggest buyer of palm oil could weigh on Malaysian palm oil futures, which have nearly halved from their all-time peak hit in 2022. Palm oil imports in the March quarter could fall to 2.2M MT, down from 3.1M MT in the December quarter, the average estimate from five trading firms showed.