Stagnating global palm oil production and higher biodiesel mandates are likely to reduce supplies of the world's most widely used vegetable oil this year, setting the stage for further gains in prices, which are trading at the highest level in seven months. .
Analysts predict a small increase or decrease in palm oil production in Indonesia and Malaysia in 2024 due to aging plantations. Furthermore, the lack of expansion also limits production, as mentioned by analysts at an industry conference in Kuala Lumpur this Wednesday.
“The possible global production deficit will support vegetable oil prices,” said Thomas Mielke, the sector’s main analyst. Oil stocks in Indonesia, the world's No. 1 producer, are low, and stocks in Malaysia, the world's No. 2 producer, are running low, he added.
On the other hand, Malaysia's benchmark contact reached 4,075RM/t, the highest since July, with gains of almost 10% in 2024, even though the market has fallen in the last two years.
Palm oil producers, predominant in exports of edible oils, use the product in a wide range of products, including chocolates, pizzas, cosmetics and as biofuel. Furthermore, annually, companies and countries export around 90 million tons worldwide, highlighting the global importance of this commodity.
Lower growth in palm oil production
Palm oil production in 2023/24 is expected to see the lowest growth in four years, estimated at 0.2-0.3 million tonnes, forecasting prices between 3,800-4,300 ringgit.
While production in Indonesia will fall in 2024, Malaysia's production is expected to remain stable, according to analyst Dorab Mistry. “We are no longer able to expand the cultivated area. And the age profile of the trees is adverse,” said Mistry at the end of the event.
Fruit yields are falling and, unfortunately, the application of technology in the sector has been the slowest compared to the global oil scenario. Palm oil production declines as Indonesia plans to increase use in biodiesel.
Fadhil Hasan of GAPKI said the new government may raise biodiesel from B35 to B40. Hasan added that one of the candidate's programs, which is likely to be elected, involves the intention to increase to B50, but this could be after 2025.
The Malaysian Biodiesel Association predicts an increase in production in 2024 with expansion of the mandatory program for 20% in more areas.
Source: Bernadette Christina and Danial Azhar | Notícias Agrícolas
