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Trade4go
Dec 13th, 2024
Original content
The Council of Palm Oil Producing Countries (CPOPC) forecasts global palm oil prices to range between USD 901.35 and 1,126.69 per metric ton (MYR 4,000 to 5,000/mt) in 2025, driven by stagnating production in key markets like Indonesia and Malaysia. As of W49, prices stood at around USD 1,126.77/mt (MYR 5,000/mt), temporarily elevated due to flooding in Malaysia, bolstering bullish sentiment.
Structural issues, including aging plantations, unpredictable weather, and limited plantation expansion, are expected to strain global supply, further supporting higher prices as global demand grows. Efforts to expand CPOPC membership by including Thailand could consolidate control over 93 to 95% of global production, significantly enhancing the group's market influence. Established in 2015, the CPOPC promotes collaboration among its members, which include Malaysia, Indonesia, Honduras, and Papua New Guinea, with additional nations as observers.
Indonesia and Malaysia are collaborating to address challenges posed by the European Union Deforestation Regulation (EUDR), as discussed at the 12th Council of Palm Oil Producing Countries (CPOPC) meeting. Both nations urged the European Union (EU) to recognize their sustainability standards as comparable to global benchmarks like the Roundtable on Sustainable Palm Oil (RSPO).
While Indonesia and Malaysia have traceability systems, they find the EU's location data requirements overly burdensome. Concerns were raised about the impact on small farmers, with 2.5 million in Indonesia and 450,000 in Malaysia potentially struggling to comply. The two countries emphasized the need for continued dialogue with the EU to ensure fair regulations that balance environmental objectives with the protection of small farmers and respect for local laws.
According to the Ministry of Trade Republic officials, Indonesia will increase the benchmark price of crude palm oil (CPO) to USD 1,071.67/mt in Dec-24, up from USD 961.97 in Nov-24. This adjustment sets the Dec-24 export duty at USD 178/mt.
CPO exports are also subject to a 7.5% duty, while more refined palm oil products face duties of 3% to 6% based on the reference price. The updated reference price regulation has yet to be released.
Indonesia will launch its B40 biodiesel program in 2025, blending 40% palm oil with 60% diesel, as part of its efforts to cut carbon emissions and meet its 2050 net-zero target. The program is forecasted to reduce carbon emissions by 40 million metric tons (mmt) annually, building on the success of the B35 program. To meet rising demand, the government plans to increase palm oil production quotas and offer subsidies to offset the price gap between B40 and conventional diesel.
However, concerns over sustainability persist. Critics highlight the potential environmental impacts of expanding palm oil plantations, risking deforestation. Additionally, allegations that Indonesian wood pellet exports are linked to deforestation have drawn international scrutiny, with South Korean lawmakers calling for an investigation. Indonesia's dual focus on bioenergy development and export growth faces challenges in balancing carbon reduction goals with environmental preservation.
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Indonesia's palm oil prices decreased to USD 1.17 per kilogram (kg) in W49, reflecting a 9.30% week-on-week (WoW) decline but a 46.59% year-on-year (YoY) increase. This fluctuation is influenced by several factors, including the government's adjustments to the CPO reference price. In Dec-24, Indonesia raised its CPO benchmark price to USD 1,071.67/mt, marking an increase of 11.40% month-on-month (MoM) from USD 961.97 in Nov-24. This led to an increase in export duties to USD 178/mt. A 7.5% levy further impacts the export duty on CPO, with duties on more refined products ranging from 3% to 6%. These price adjustments, alongside rising global demand, suggest that palm oil prices may see further increases in the short term. If the market breaks past current resistance levels, it could potentially revisit previous highs. However, the full impact of the updated reference price regulation, once published, could influence future price trends. As demand remains strong and production constraints persist, Indonesia's palm oil prices may continue to experience upward pressure in the coming months.
Malaysia's palm oil prices have experienced notable increases, reaching USD 1.19/kg in W49, marking a 7.21% WoW and a 42.31% YoY rise. This uptick is attributed mainly to supply disruptions, primarily from severe flooding in key palm oil-producing regions and heightened export taxes in neighboring Indonesia, which have collectively tightened the global palm oil supply. The flooding in Malaysia, considered one of the worst in a decade, has raised concerns over potential long-term production impacts, particularly in areas with significant plantation activity. The disruption to infrastructure and plantations could exacerbate supply shortages, supporting higher prices in the near term. Additionally, Indonesia's increased export taxes are reducing the competitiveness of its palm oil on the global market, indirectly benefiting Malaysia as traders seek alternative sources. However, the expected decline in Malaysian palm oil exports—projected to drop by 9.3% to 10.4% in Nov-24—may dampen market momentum.
Slower demand from key importing nations, particularly India and China, will likely moderate the price increases, especially as global palm oil competition intensifies with other vegetable oils. A potential build-up of stocks during Dec-24 and Jan-25, coupled with rising production costs, could further pressure prices. While supply disruptions and increasing export taxes in Indonesia may support Malaysia's palm oil prices, the near-term outlook remains volatile, with potential price stabilization or declines due to reduced exports and slower demand from major consumers.
Thailand's palm oil prices have increased significantly, reaching USD 1.25/kg in W49, marking a 5.04% WoW and 45.12% YoY rise. The upward price trend reflects tightening supply conditions influenced by ongoing weather disruptions in the region. The country faces a second wave of heavy rains and potential flooding, which could further affect palm oil production in flood-prone areas. Although some flooding in affected regions has begun to recede, the persistent weather conditions in Southern Thailand continue to pose risks to plantation activities.
As of the latest reports, over 430,000 households in Southern Thailand remain impacted, with the possibility of further rainfall expected in the coming days. These weather disruptions add uncertainty to palm oil production, as floods can damage plantations and hinder harvesting activities. With ongoing supply concerns, Thailand's palm oil prices may continue to experience upward pressure, particularly if production is disrupted further. Additionally, rising palm oil prices may be influenced by regional competition with other producers, such as Malaysia and Indonesia, grappling with their own production and export challenges. While Thailand's palm oil prices are rising due to supply constraints, the situation remains volatile, with weather events and potential flooding posing significant risks to future production and price stability.
As the EUDR and other sustainability initiatives affect global palm oil markets, companies should proactively engage with regulatory bodies to ensure compliance with evolving standards. Producers and traders should prioritize transparent traceability systems and adapt to new requirements while safeguarding small farmers' interests. Strategic investments in sustainable practices, such as those promoted by the RSPO, will help maintain market access and improve brand reputation, aligning with environmental and social governance goals.
With the expansion of Indonesia's B40 biodiesel program, stakeholders should consider exploring opportunities to integrate palm oil into their biofuel portfolios. Diversifying biofuel sources can help balance environmental goals with economic growth. Additionally, businesses can explore alternative oils for food production, such as soybean or sunflower oil, while closely monitoring fluctuations in palm oil prices. By investing in biodiesel and exploring other oil options, companies can enhance supply chain resilience and contribute to sustainable energy goals.
Businesses should adopt a diversified sourcing strategy to mitigate risks associated with rising palm oil prices and supply disruptions in key producing countries. This can include sourcing from multiple regions, such as Indonesia, Malaysia, and Thailand while monitoring emerging markets in regions like Central America and Africa. By reducing reliance on specific regions and fostering relationships with diverse suppliers, businesses can secure more stable pricing and ensure a steady supply despite potential production challenges, such as weather disruptions or export tax increases.
Sources: Tridge, the Edge Malaysia, Ukragroconsult. Reccessary, Grain Trade
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