1. Weekly News

Global

Global Oil Prices Surge Due to Indonesian Palm Oil Shortfall, EU Vegetable Oils Hit New Highs

Global oil prices have risen sharply, driven by a USD 90 to 110 per metric ton (mt) increase in crude palm oil (CPO) prices. This surge is due to lower-than-expected production in Indonesia, leading to a decline in palm oil stocks and exports. The shortage drove European Union (EU) prices higher, with sunflower oil reaching USD 1,125/mt, rapeseed oil at USD 1,083/mt, and soybean oil at USD 1,110/mt, all on a free-on-board (FOB) basis. Increased Malaysian exports only partially offset Indonesia’s reduced shipments. Experts predict a potential price correction as Indonesian production is forecasted to recover by late 2024 and grow into 2025. The export outlook will depend on Indonesia’s domestic blending mandate, potentially increasing to 40% by Jan-25.

Palm Oil Loses its Status as World's Cheapest Edible Oil Following Production Declines and Price Fluctuations

Palm oil has lost its status as the world's cheapest edible oil due to declining output from major producers and an ample supply of alternative oils. Once trading at a discount of USD 782/mt to soybean oil in Nov-22, palm oil now commands premium pricing. Typically, palm oil is less expensive to produce than soy, sunflower, and rapeseed oils due to its year-round harvesting and lower land requirements. However, Indonesian and Malaysian palm plantations, which supply 85% of the global market, face challenges. Smallholders are hesitant to replace aging trees, as replanting can take four to five years to yield fruit, while soybean crops mature in about six months.

Global palm oil prices have risen by 10% this year, contrasting with a 9% decline in soybean oil prices, attributed to improved crop prospects in countries like the United States (US). Despite this fluctuation, a structural shift in preference away from palm oil is unlikely in the near- to medium term due to its unique properties that appeal to various sectors. Key users in India, including cookie manufacturers and restaurants, are waiting to seek alternatives, although some household consumption may shift. Additionally, Indonesia's strong biodiesel demand will likely support palm oil prices. Seasonal factors may impact the market, as palm oil consumption typically declines in December and January when temperatures drop, prompting a search for substitutes. Analysts note that if festival demand subsides and Southeast Asia's production increases, the premium on palm oil could diminish, potentially allowing soybean and sunflower oils to capture a larger market share in India

Argentina

Argentine Agricultural Sector Welcomes EC's Request to Postpone Deforestation Regulatio

The Argentine agricultural sector welcomed the delay, asserting that the regulation was excessive and difficult to comply with. Stakeholders emphasized the need for negotiations to address aspects of the regulation, such as physical segregation and recognition of national forest legislation. The decision aims to provide exporting countries more time to prepare for compliance, as many are at low risk of contributing to deforestation. The European Parliament (EP) is expected to address the request soon, with high confidence that the delay will be approved.

Indonesia

Indonesia's Palm Oil Exports Expected to Fall as Domestic Demand Grows and Production Faces Hurdles

Indonesia's palm oil exports are forecasted to decrease by 1.8 million metric tons (mmt) in 2024 due to rising domestic demand and lower production. The Indonesian Palm Oil Association (IPOA) projects that exports will decline to 27.39 mmt this year, with production also expected to drop by 907.18 thousand mt to 48.80 mmt due to prior dry conditions impacting yields. Indonesia's blending mandate increased to 35% in 2023 and potentially increased to 40% by Jan-25, boosting domestic consumption and reducing export surpluses. Although Jakarta cut export duties to stimulate exports, outcomes fell short, and further export challenges are anticipated due to the EU's new deforestation law.

Rising Tariffs and Negative Perceptions Drive Decline in Indonesian Palm Oil Exports to India

Indonesian palm oil exports to India have significantly declined due to rising import tariffs and negative perceptions surrounding palm oil. In Sep-24, India raised its import tax on palm oil from 12.5% to 32.5%, making it more challenging for Indonesia to compete with other vegetable oil exporters. The Indonesian Palm Oil Entrepreneurs Association (GAPKI) reported a drop in CPO production, with exports to India decreasing by 44.45 thousand mt to 265.80 thousand in Jul-24. In addition, the Indian government is promoting its National Mission on Edible Oils - Oil Palm (NMEO-OP) to reduce reliance on palm oil imports, posing further threats to Indonesian exports. The Indonesian Ministry of Trade seeks to address these issues by enhancing promotional efforts and leveraging trade agreements, such as the Association of Southeast Asian Nations -India Free Trade Area (ASEAN-AIFTA), to improve market access for Indonesian palm oil.

Indonesian Ministry of Industry Lauds BPDPKS for Advancing Palm Oil Downstream Research Initiatives

The Indonesian Ministry of Industry (Kemenperin) has commended the Palm Oil Plantation Fund Management Agency (BPDPKS) for its focus on research initiatives that support the downstream policy for palm oil. These initiatives aim to expand product development into five categories: food, phytonutrients, fine chemicals, liquid fuels, and fiber/biomaterials. The Director General of Agro-Industry highlighted the establishment of a pilot plant funded by BPDPKS for biomass processing, which serves as a precursor for the biomaterial industry. Inaugurated on August 8, 2024, this facility is located in Bogor and plays a crucial role in testing biomass processing technology, which is essential for developing biochemical precursor plants.

The pilot plant also acts as a living laboratory for researchers and academics to advance palm oil biomass fractionation technology, a process that separates and converts palm oil biomass — such as palm fronds, empty fruit bunches, and palm kernel cake—into valuable products. The Ministry aims to foster collaborations among existing business actors to leverage research outcomes for industrial applications, thereby maximizing the benefits of research advancements in the palm oil sector.

2. Weekly Pricing

Weekly Palm Oil Pricing Important Exporters (USD/kg)

Yearly Change in Palm Oil Pricing Important Exporters (W40 2023 to W40 2024)

Indonesia

Indonesia's CPO prices increased to USD 1.15 per kilogram (kg) in W40, a 5.50% week-on-week (WoW), and a 25.29% year-on-year (YoY) increase from USD 0.87/kg in W40 2023 due to lower-than-expected production, resulting in significant declines in stocks and export shipments. This tight supply has made palm oil more attractive globally, particularly as a biodiesel feedstock. While current price increases are significant, a potential correction could occur as production recovers from Oct-24 to Dec-24. Future prices will also depend on Indonesian government policies, notably the proposed increase in the domestic blending mandate from 35% to 40% by Jan-25, which could tighten local supply and elevate export prices.

Malaysia

Malaysia's CPO prices stood at USD 0.99/kg in W40, marking a 2.02% WoW and a 28.57% YoY rise from USD 0.77/kg in W40 2023. This increase is due to geopolitical tensions in the Middle East that have driven crude oil prices higher. The rise in Brent crude futures by 1.88% to USD 74.94 per barrel enhances palm oil's appeal as a biodiesel feedstock, potentially boosting demand and prices. This uptick has implications for the broader edible oils market, as rising crude prices typically lead to increased palm oil demand. The EU reported a 36% decline in imports for the 2024/25 season, and the Malaysian ringgit's recent appreciation against the US dollar could impact global trade dynamics.

Thailand

In W40, Thailand's RBD palm oil prices rose to USD 1.07/kg, a 2.88% WoW increase, and a 28.40% YoY rise from USD 0.81/kg in W40 2023. Thailand's recent extension of its biofuels mandate is set to boost palm oil demand for biodiesel, supporting prices amid rising production costs and challenges from electric vehicle (EV) adoption. Government subsidies are essential for maintaining feedstock availability, mainly as weather-related issues from El Niño affect crop yields. However, with the projected increase in EV sales — aimed at 30% of new cars by 2030 — demand for palm oil, primarily used in biodiesel, may face pressure as gasoline consumption declines. This transition could lead to potential oversupply in the palm oil market, impacting future pricing stability.

3. Actionable Recommendations

Enhance Export Promotion Efforts

To counter the decline in palm oil exports, particularly to India, stakeholders should intensify promotional initiatives highlighting the quality and sustainability of Indonesian palm oil. This could involve leveraging trade agreements like the ASEAN-AIFTA to improve market access and counteract rising import tariffs. Strategic partnerships with Indian food manufacturers can facilitate a better understanding and acceptance of palm oil, potentially increasing demand in this critical market.

Invest in Sustainable Practices and Certification

As global scrutiny on sustainability intensifies, palm oil producers should invest in sustainable agricultural practices and pursue certification from recognized organizations, like the RSPO Certification. This approach will improve marketability and comply with evolving regulations, such as the EU’s upcoming deforestation laws. Implementing environmentally friendly practices can enhance producer credibility, opening doors to premium markets and prioritizing sustainable sourcing.

Leverage Research and Development in Value-Added Products

Stakeholders should focus on research and development initiatives that explore value-added products derived from palm oil biomass. Collaborating with the BPDPKS to establish pilot projects can promote food, biochemical, and biofuel innovations. This diversification can mitigate risks associated with fluctuating CPO prices and enhance producer revenue streams.

Sources: Tridge, APK, News Mongabay, UkrAgroConsult, Warka Ekonomi, Agromeat, Hellenic Shipping News Worldwide,