InfoSAWIT, JAKARTA — Julian McGill, Managing Director of Glenauk Economics, has highlighted the structural challenges facing palm oil in the global vegetable oil market. According to McGill, palm oil has weaknesses due to its liquid storage form and seasonal supply fluctuations.
Compared to sunflower oil, which also experiences strict seasonal patterns and disruptions due to conflict, palm oil is considered more economical, though not viewed as a “premium” oil. Surpluses or shortages in vegetable oils are often driven by availability rather than oil quality itself, McGill noted. He pointed out that stagnating palm oil plantation growth has meant palm oil supply has not seen significant increases since 2019, the peak year for palm oil exports.
“The rise in domestic demand in Indonesia, particularly for biodiesel, has further tightened the palm oil supply, while exports of palm kernel oil (PKO) have also shown a significant decline. Excessive investment in Indonesia’s fatty alcohol industry has further restricted supply,” McGill remarked during a palm oil conference, as quoted by InfoSAWIT on Monday (11/11/2024).
High vegetable oil prices in 2020/2021 did not stimulate palm plantation expansion, unlike in 2010/2011. While the expansion of sunflower and rapeseed oil production remains limited, future supply growth is anticipated to come primarily from soybean oil.
The stagnating supply of palm oil means that reduced demand in certain markets, such as the European Union, is unlikely to drastically impact global prices. The EU has significantly reduced palm oil imports, primarily due to the phase-out of palm oil in biodiesel production. Nevertheless, palm oil remains essential for certain products where alternatives are limited.
The delayed enforcement of the European Union Deforestation Regulation (EUDR) also fails to address regulatory issues, such as challenges with palm oil segregation. McGill projects that crude palm oil (CPO) premiums will remain low, while prices for palm stearin and PKO are expected to be higher due to import tariffs.
Despite Malaysia showing growth in palm oil production in 2024, Indonesia is projected to lead supply growth, benefitting from improving conditions after recent droughts. However, McGill cautioned that if crude oil prices do not rise, palm oil prices are likely to correct by the end of 2024, potentially returning to around US$1,000 per ton (FOB Indonesia). For 2025, prices on the Bursa Malaysia (BMD) are expected to stabilize within a range of US$950–1,050, even as Indonesia’s supply recovers. (T2)
