Higher demand, declining reserves to support palm oil prices

KUALA LUMPUR – Palm oil prices are likely to be supported in 2019 by rising consumption, falling inventories and slowing growth in production of the edible oil, a leading industry analyst has told Reuters.

Malaysian palm oil futures slipped almost eight percent in February amid worries over declining demand, but analyst James Fry expects appetite to be stoked as more of the commodity is used in biofuels.

Biodiesel production is forecast to use 12-13 million tons of crude palm oil this year, up from about 10 million tons last year, Fry said.

“Indonesia has implemented the B20 (mandate) and B30 is possible after elections,” Fry said, referring to rules that mean biodiesel must have a bio-content of 20 or 30 percent.

“Malaysia has B10. Globally two million tons of additional palm oil will be used to make biodiesel,” Fry said on the sidelines of an industry conference in Kuala Lumpur.

Indonesia and Malaysia, the world’s top producers of palm, have implemented higher biodiesel mandates in recent months to boost consumption of the commodity.

Fry added that the Sino-US trade conflict could stoke Chinese appetite for palm as an alternative to oils made from soybeans.

“China is expected to use less soybean oil because of the trade war, which means higher use of palm oil. There is additional food demand for palm oil and higher biodiesel consumption (in China),” he said.

And Fry expects output growth to ease in 2019.

“There is cutback in the use of fertilizer because of low prices (for palm last year), and it will impact production by around the middle of this year,” he said.

“The growth in output will be lower than what it would have been otherwise,” Fry said, adding that he expects global palm oil stocks to drop by more than one million tons in 2019.

That comes after palm oil inventories in Indonesia and Malaysia, which account for over 80 percent of global supply, rose to record highs in 2018.