The palm oil market in 2017
During 2017, the palm-oil market was dominated by recovery from the 2015-16 El Niño weather pattern. There was a marked increase in production by both Malaysia and Indonesia, which together accounted for 83% of world output of CPO, as average palm yields improved. The resulting fall in the price of CPO stimulated demand, resulting in greater imports notably by India, China and the EU. World consumption of palm oil, according to Oil World, rose by 4% to 65 million tonnes.
The rebound in global production surpassed increasing consumption, leading to a rise in stocks. World stocks rose from relatively low levels, and notably in producing countries rather than in countries with import demand. By the end of the year, stocks stood at a little above 12 million tonnes, still somewhat below the level of 13.5 million tonnes they had reached at the end of 2015. Moreover, the stock:usage ratio for CPO remained at a modest 13% in the main importing countries of India and China.
As a result of increasing production, barring a rally in May, the price of CPO fell during the first half of the year. It fell from the levels above US$800 per tonne at which it had started the year as a rebound in production occurred following the end of the 2015-16 El Niño. From the end of June, however, the CPO price strengthened until the beginning of November, when it again experienced a setback before rising in the last two weeks of December to finish the year at US$674 per tonne, US$121 below its level on 1 January. Despite the fall in price between the beginning and end of the year, the average price for CPO, cif Rotterdam in 2017 was US$714, US$14 higher than it had been in 2016.
A shortage of palm kernel oil as well as its main competitor, coconut oil, drove prices to reach a five-year high at the beginning of 2017. As production of both oils increased, the price of palm-kernel oil fell sharply even against the background of increasing consumption, before rising to establish a more normal level of discount against coconut oil during the last quarter of the year.