Palm-oil market in 2022
The vegetable-oil market moved into 2022 in a position of relatively tight supplies and high prices. Throughout January and into the first part of February, cif Rotterdam prices for CPO were already at historically high levels, between US$1,300 and US$1,500 per tonne. At the outbreak of war between Russia and Ukraine, prices increased sharply, reaching almost US$2,000 per tonne, particularly due to concerns about reductions in sunflower-oil supplies from Ukraine, and remained at elevated levels for several months. Indonesia accounts for more than half of world palm-oil supplies, and the Indonesian government took the unexpected step of introducing a temporary ban on exports in April 2022, causing a build-up of stocks, an increase in demand for other vegetable oils, and a rapid decline in prices once the ban was lifted in late May.
The second half of the year was characterised by improving supply in Indonesia compared to the earlier part of the year. Looking to the longer term, there is some evidence that the growth in mature areas planted to oil palm in Indonesia is slowing, indicative of the government’s more restrictive policies on land use. In Malaysia, labour shortages remain an issue and, despite some improvements, the shortfall is expected to be a continuing drag on production. Whilst not at the historically high levels seen in the first half, pricing stabilised in the second half of the year with CPO cif Rotterdam a little above US$1,000 for much of the period. Demand for palm oil strengthened in the second half of the year due to its price competitiveness when compared to other major vegetable oils. At points during the period, Indonesian palm oil was trading at a more than US$400 per tonne discount to South American soya oil, compared to average discounts of approximately US$100 over the last ten years.
The Group does not receive the full benefit of the cif Rotterdam prices referred to above. It receives a ‘mill-gate’ price for its CPO which is based on local tenders, and which is net of adjustments to allow for transport and insurance costs, but more significantly, Indonesian export taxes and levies. During 2022, as a result of the high CPO prices, the Indonesian government made a number of changes to the taxes and levies applied to CPO. These included changes to the amounts of taxes and levies charged at certain CPO price bands, a temporary export levy ‘holiday’ and the introduction of a temporary additional export tariff.
By the end of the year, the export tax and levy arrangements had reverted to a similar position to that in place at the start of the year, and there have been no changes for several months.
The average mill-gate price received for the Group’s CPO in 2022 was US$854 per tonne, up by 5% on the US$810 per tonne received in 2021.
In 2022, world production of palm oil was 78.9 million tonnes, up by 4% on the 76.0 million produced in 2021. The largest part of the increase was in Indonesia where production is now 46.5 million tonnes. There was a slight fall in global consumption during the year, partly as a result of the temporary market disruption caused by the export ban in Indonesia, although this was offset by an increasing consumption in Indonesia’s domestic market. There was a fall in consumption in China in 2022, but imports are expected to increase as changes to lockdown policies take effect.
The Group’s mills produce both CPO and palm kernels (“PK”). The Group sells its PK to independent kernel-crushing facilities, in which palm-kernel oil (“PKO”) is produced. The price that the Group is able to secure for its PK is therefore connected to the market for PKO. That market can also be connected to the one for coconut oil, because of its use in similar end products such as personal care and cosmetic items.
In the early part of 2022, a combination of high demand for hygiene products and a reduced level of coconut-oil production pushed up the prices available for the Group’s PK, peaking briefly at almost US$1,000 per tonne in March. Since then, the disruption caused by the palm-oil export ban, along with recovering coconut-oil production causing a change in demand patterns, did lead to a reduction in prices but, as with CPO, prices stabilised over the second half of the year. Over the whole of 2022, the Group’s average selling price for its palm kernels was US$611 per tonne, 15% higher than the US$533 per tonne for 2021.
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