Palm-oil market in 2020
The year 2020 began well for the palm-oil market. This resulted from expectations of modest vegetable-oil supply increases during the year ahead failing to match rising demand.
CPO prices had already risen strongly at the end of 2019 as vegetable-oil stocks were depleted compared with previous years. However, the Covid-19 pandemic then took hold and bore down on demand and trade, leading the price of CPO to fall sharply from the middle of February. Whilst global consumption did fall during the pandemic, production of palm oil fell even further. Against a background of low stock levels, this led to a recovery in the palm-oil price starting in May 2020, which continued strongly through the rest of the year to finish at US$1,035 cif Rotterdam. At the end of 2020, world stocks of palm oil stood at less than two months’ consumption: historically a low level. World production of palm oil in 2020 was 73.8 million tonnes, unusually less than the 78.8 million tonnes recorded in 2019. The combined share of Indonesia and Malaysia in world palm-oil production stood at 83.3%, marginally lower than in 2019. Crop in Malaysia has been increasingly affected by its ageing stock of palms, but in 2020 this was overshadowed by controls on labour migration introduced to combat Covid-19, which deprived plantations of workers to maintain fields and harvest crop. This did not affect Indonesia in the same way, although its crop dipped in the latter part of 2020 in response to drier weather and the likely growing impact of reduced fertilising and investment during the period of low CPO prices in 2018 and 2019. Demand for palm oil in Indonesia nevertheless rose, mainly as a fuel. Whilst total production of palm biodiesel stagnated, a collapse in palm biofuel exports was taken up by a strong increase in domestic demand funded by the Indonesian government from an export levy introduced at the end of 2019 and then increased in December 2020 in response to escalating CPO prices. Unsurprisingly, given the backdrop of the Covid-19 pandemic, world trade in palm oil fell by some 5.2 million tonnes, or 8%, in 2020 compared with 2019. China and India between them accounted for more than two-thirds of this reduction. In India, tariff barriers to palm oil were increased and demand in the hospitality sector evaporated. As a result, palm oil’s share of vegetable-oil imports to India reduced by 5%. After a strong increase in 2019, palm-oil consumption in China fell back both as the country imported more sunflower oil and as the supply of domestic soybean oil increased in step with greater production of soybean meal to feed its pig herd, recovering after an outbreak of swine fever. Overall, the world consumed 3.6 million fewer tonnes of palm oil in 2020 than in 2019 but, according to Oil World, consumption still outstripped production by
1.4 million tonnes.
A sharp reduction in import demand for palm oil was concentrated in the first quarter of 2020. From the second quarter onwards, trade grew to the point where world palm-oil imports in the last quarter of 2020 were only 4% lower than in the last quarter of 2019. At the beginning of 2020, the abrupt fall in trade had been absorbed by a reduction in stocks. Whilst there was some rebuilding of stocks in the second quarter, weak global production led to stocks falling to the end of the year, ending even lower than in 2016, when the sector had suffered from an unusually harsh El Niño weather pattern, and barely higher than they had been in March 2020. The effect on the price of CPO was pronounced. After starting the year at US$860 per tonne it fell to a low of US$510 in the middle of May, and then recovered strongly to the end of the year. The average price in 2020 for CPO cif Rotterdam was US$716 per tonne, an increase of US$150 over the average in 2019.
The production pattern of PKO followed that of CPO. However, in contrast to CPO, PKO had started 2020 with good levels of global stocks and plentiful supplies of its main competitor, coconut oil. The price of PKO fell with the onset of the Covid-19 pandemic and, having started the year at US$668 per tonne cif Rotterdam, reached a low point of US$553 per tonne towards the end of April 2020. High stock levels persisted into the third quarter, holding back a recovery in the price of PKO. During the last quarter, however, deep discounts of PKO to coconut oil, in addition to shortages of coconut oil, prompted a rally which carried the price to US$1,322 per tonne at the end of 2020. The average PKO price for the year was US$796 per tonne, compared with US$668 in 2019, an increase lagging that of coconut oil by some margin.