Palm oil prices to climb 17.9% in 2020 on tight supplies, biodiesel programmes; trade disputes to hit exports: Poll

Kaula Lumpur: Average palm oil prices will surge 17.9 percent this year, a Reuters poll of industry participants showed, as reduced output in the first half of the year and higher biodiesel consumption in top producers Indonesia and Malaysia tighten the market.

Benchmark palm oil prices will average 2,650 ringgit ($650.80) a tonne in 2020, up from 2,248 ringgit last year, according to the median estimate from a poll of 18 analysts and industry players.

“With relatively low production in the first quarter, production will only be sufficient for export and not for topping up stock,” said Derom Bangun, chairman of the Indonesia Palm Oil Board.

Representational image of palm oil seeds. Reuters.

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Supplies are expected to rebound later in the year, however, and prices could be “much lower from April to December”, said Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil importer based in Mumbai.

Indonesia’s palm production is pegged to rise 0.55 percent to 45.75 million tonnes in 2020 from an estimated 45.5 million tonnes in 2019, according to the median estimate of 14 poll respondents who answered questions specifically on Indonesia’s palm sector.

This is compared to output growth of 5.8 percent in 2019 over 2018’s total of 43 million tonnes, sources said.

Output in No.2 producer Malaysia will grow by 0.35 percent to 19.93 million tonnes this year, based on the median estimate from 14 participants.

In 2019, Malaysia’s production rose 1.85 percent to 19.86 million tonnes, up from 2018’s 19.5 million tonnes.

The slower output growth is due to dry weather and lower fertiliser usage in both countries last year, when palm prices dropped as low as 1,960 ringgit.

Indonesia and Malaysia together account for nearly 90 percent of global palm production.

Indonesia's biodiesel programme 

“(In) year 2020 much depends on whether Indonesia can produce 10 million kilolitres of biodiesel,” said Christopher Chai, a general manager with Malaysia’s Kwantas Corp.

The market will be closely watching the roll-out of Indonesia’s B30 biodiesel programme - biodiesel with 30 percent palm content - and Malaysia’s newly implemented B20 programme, as together they are expected to increase local consumption by 10-13 percent, traders said.

Indonesia is targeting 10 million kilolitres (8.7 million tonnes) of biodiesel production this year, while Malaysia’s biodiesel association is expecting to produce 1.7 million to 2 million tonnes of the fuel.

Trade wars to hit exports this year

Ongoing trade disputes between China and the United States, India and Malaysia, and the European Union and Indonesia will likely affect export shipments this year, poll respondents said.

“The Indonesian government’s battle with the EU on the latter imposing anti-dumping duties on Indonesian biodiesel exporters will hog the media attention,” Sathia Varqa, owner and co-founder of Singapore-based Palm Oil Analytics, said.

Malaysia benefited from the trade war between the United States and China in 2019, with exports to China rising by 33.9 percent last year. However, a trade deal between the two largest economies may see China resume purchases of US soybeans, which may result in a lower demand for palm oil.

India, the world’s largest edible oil buyer, as well restricted overall imports of refined palm oil on Jan. 8., and informally instructed its traders to avoid purchases from Malaysia following a diplomatic squabble.