Industry performance report 2014

The acreage under oil palm in Malaysia expanded to 5.39 million ha for the year under review, up by 3.11% compared to 5.23 million ha previously (Table 1).

Overall CPO output went up to 19.67 million tonnes, or by 450,494 tonnes (2.34 %) over the comparative period. This was attributed to better quality of fresh fruit bunches and new production areas especially in Sarawak.

Source: MPOB – data as at Jan 19, 2015; subject to revision

Reduced palm oil output particularly due to floods in December resulted in lower closing stocks of 1.9 million tonnes, which was 2.72% lower year-on-year. Palm kernel oil closing stocks stood at 0.29 million tonnes, reflecting a drop of 13%.

Export demand for palm oil and derived products was 2.45% lower, with the volume falling from 25.7 million tonnes to 25.07 million tonnes (Table 2). Palm oil exports were recorded at 17.31 million tonnes, compared to 18.15 million tonnes the previous year. The drop of 840,576 tonnes (by 4.63%) was mainly due to lower demand from China, Pakistan, USA, Ukraine and Iran.

Oleochemical exports showed a 3.72% increase, going up to 2.83 million tonnes from 2.73 million tonnes a year earlier. Higher demand from the EU-28, China, USA and Japan helped drive up demand. Biodiesel exports halved to 87,356 tonnes or by 50.09%, but exports of finished products went up to 449,624 tonnes or by 22.46%.

Source: MPOB – data as at Feb 15, 2015; subject to revision

The volume of Malaysian palm oil exports dropped by 4.63% (Table 3). The top 10 importing countries and regions took up 12.59 million tonnes, or 73% of the 17.31 million tonnes exported. India overtook China to become the top destination, absorbing 38.9% more over the year. Its volume of 3.23 million tonnes made up 18.7% of Malaysia’s palm oil exports. Intake by the EU-28, Japan, Vietnam and The Philippines also trended higher.

China/HK’s imports of 2.86 million tonnes, while still substantial, represented a 23.09% drop in demand. This was due to higher domestic crushing and soybean imports, estimated at about 70 million tonnes against 63.4 million tonnes the previous year. USA absorbed 243,884 tonnes less, down by 23.75%, but remained among the five biggest importing countries of Malaysian palm oil, with 783,105 tonnes for the year.

Source: MPOB – data as at Feb 5, 2015; subject to revision
Note: * Includes Japan, South Korea, North Korea & Taiwan

Exports of CPO and processed palm oil fell from 18.15 million tonnes to 17.31 million tonnes (Table 4).

Source: MPOB – data as at Feb 11, 2015; subject to revision

The annual average local delivered CPO price increased slightly by RM12.50 (0.53%) to RM2,383.50 per tonne, against RM2,371 previously . This was the outcome of tight domestic supply during the first half of the year. The average export prices of RBD palm oil and RBD palm olein fell to US$763.50 (by 3.48%) and US$762 (by 5.34%) per tonne respectively.

Export earnings from palm-based products increased slightly by 3.68% to RM63.62 billion (Table 5), largely because of better prices of oils and fats. Revenue from palm kernel oil sales increased by 23.38%. However, a decline was seen for palm oil (by 1.7%), palm kernel cake (by 1.21%) and biodiesel (by 48.79%).

Source: MPOB – data as at Feb 15, 2015; subject to revision

Global Scenario
World production of oils and fats stood at 200.24 million tonnes (Figure 1). Palm oil and palm kernel oil jointly accounted for 66.15 million tonnes (33%) of this. Soybean oil output stood at 45.14 million tonnes (23%) and rapeseed oil at 26.92 million tonnes (13%).

Of the 71.39 million tonnes of oils and fats traded worldwide during the year, palm oil and palm kernel oil jointly accounted for 66% (Figure 2).

Malaysia remained a major player in the oils and fats export market. Its palm oil exports of 17.31 million tonnes represented 39% of the global palm oil trade (Figure 3).

Outlook for 2015

Global oils and fats production is forecast to increase by 2.55% to 202 million tonnes in 2015, compared to 197 million tonnes currently. Demand growth is expected to be sustained at 2.7%. More than 30% of the world’s oils and fats requirements will be met by palm oil.

In the Americas, soybean production is likely to reach an all-time high in the three main producing countries – USA output is expected to exceed 100 million tonnes, while Brazil and Argentina could produce a combined 150 million tonnes. This is despite unfavourable weather forecasts for South America, given reports of erratic climatic conditions. It will result in higher stock levels and, consequently, a higher stock usage ratio vis-a-vis that in 2014.

World palm oil output is set to reach 62 million tonnes, up by 2.9 million tonnes compared to 59 million tonnes in 2014. Malaysia’s CPO production is forecast to retain its uptrend, from 19.67 million tonnes currently to 20.09 million tonnes.

The International Monetary Fund projects that, barring major geopolitical upheavals, the global economy will grow at a rate of 3.5% compared to 3.3% in 2014. The US economy will continue to develop, but the expansionary phase will show signs of maturing; this could cause moderation in profitability, joined by a variety of cost pressures. European economies have more scope to recover, but there are dark clouds due to slowing exports and dysfunctional policy responses to deflationary pressures.

China will continue its ‘soft fall’ as government stimuli will have less effect and monetary policy will become tighter. Growth is certain in other major emerging markets but the rate will depend on the pace of reforms. New regions for economic expansion, such as Africa and parts of Asia, offer opportunities to build sustainable growth models, but this will also raise challenges on the economic, legal and institutional fronts.

In the Middle East, there are clear signs that the improving political situation will lead to a more stable economic climate. This augurs well for development of its oils and fats market, as the region is not self-sufficient and relies on imports.

Factors such as the price of crude oil and drastic changes in weather patterns will undoubtedly have a direct effect on palm oil prices. The increased biodiesel blending requirement in the Americas, as well as Indonesia’s foray into biodiesel production as a major producer, will enhance demand for palm oil as a source of food and biofuel feedstock. Hence, the price of palm oil is expected to improve in 2015 – at very least, current levels will be sustained.

Tan Sri Datuk Dr Yusof Basiron