KUALA LUMPUR (March 8): Malaysia and Indonesia, which together account for 80% of the world's palm oil production, could see the growth of palm oil production slow down to an average 1.9 million tonnes per year until 2030 due to considerable slowdown in expansion activities, said leading palm oil analyst Thomas Mielke.

Palm oil production increased by an average of 2.3 million tonnes per year in the two countries and by 2.9 million tonnes globally in the 10 years until 2020, said Mielke, who is the head of Hamburg-based analyst firm Oil World.

He said insufficient replanting and management constraints are also keeping yields below potential, while soaring input costs and strict sustainability criteria are discouraging investments in the palm oil industry.

He is forecasting Malaysia’s palm oil production to come in at 19 million tonnes this year.

“Palm oil has lost its growth dynamic, and I have been following this market since the mid-1970S. We have seen the doubling of palm oil production until 2019, but this is not continuing. We are seeing very poor levels of production worldwide in 2020 and 2021. In 2022 we saw some recovery, but it is still way below trend,” he said at the 34th Palm and Lauric Oils Price Outlook Conference and Exhibition (POC2023) on Wednesday (March 8).

Crude palm oil (CPO) production in Malaysia and Indonesia has been growing at a much slower pace in the last six years despite rising demand for the commodity. This is due to labour shortage issues, which began during the Covid-19 pandemic and persisted through 2021 and 2022. The labour shortage has also led to lower palm oil yields due to a slowdown in harvesting and replanting activities in the oil palm estates.

There is no respite for the industry. Mielke said the threat of moderate El Nino events that are forecast to kick in this year will further add to the pressure of production.

“When it (El Nino) comes, it is not going to affect this year's production, but it will affect (market) sentiments. It is going to affect production only in the second half of 2024 and 2025. This is something we need to watch (for) and it will be a price determining factor before it really hits production,” said Mielke.

Palm oil crop is sensitive to heat and drought that is brought by El Nino events, which affects oil palm production and causes fluctuations in CPO prices.

However, Mielke expects that fulfilment of the current biofuel targets would keep CPO prices supported for the second half of 2023 and 2024.

James Fry of LMC International said Malaysia’s CPO futures could average at RM3,760 a tonne from  RM4,920 a tonne in 2022 due to pressure from low gasoline prices amid the Ukraine-Russia conflict.

“(Russian President Vladimir) Putin’s unprovoked invasion has affected every aspect of the vegetable oil market. It transformed fossil fuel prices by cutting Russian petroleum and gas sales to Europe. The fall in gasoil price which is guided by futures, you can actually see CPO prices coming down,” he said at the conference.

However, he added that Malaysia’s prompt and transparent inventory publication continues to play a key role in setting CPO prices at premium over gasoil.

“Palm oil futures contract will trade at RM3,350 per tonne by the end of the year,” said the palm oil analyst.

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