The palm oil market in 2019
Against a backdrop of low prices, demand for palm oil grew strongly in 2019. Production too increased, to a record 76 million tonnes.
Rising production was not enough to satisfy burgeoning demand for palm oil as a food and as a constituent of biodiesel, notably in Indonesia itself where crude-palm-oil (“CPO”) consumption increased by 20%. As a result, stocks of CPO fell sharply during the year from the high levels they had reached at the end of 2018. Increasing demand and lower stock levels saw the volume of trade in CPO rebound during 2019: 60% of trade in vegetable oils was palm oil.
Indonesia and Malaysia remain the world’s largest palm-oil producers, accounting for 84% of global CPO production. In these countries production increased by 1 million tonnes (some 2%), a more modest increase than in 2018. In both countries the average yield per hectare fell slightly. Production growth attenuated significantly in the second half of the year. Disease in Latin America and volcanic eruptions in Papua New Guinea lay behind near stagnant production in the rest of the world. This was attributable to a respite in palm productivity following high crop during 2018 and the early part of 2019, and also palms beginning to show the consequence of many producers opting to reduce costs by restricting the use of fertilizers in late 2018 and 2019 in response to low CPO prices. At the same time, there was a significant increase in the imports of CPO by China, India and the EU during 2019. This was especially marked in China. Here, imports of CPO rose from 5.4 million tonnes in 2018 to 7.7 million tonnes in 2019 as the Chinese soybean crush fell by 10% and less animal fat was available domestically as a result of African swine fever reducing the Chinese pig herd. These developments took place at a time when global production of other vegetable oils barely increased. The total increase in world production of vegetable oils in 2019 was 2 million tonnes, half of which was from CPO.
Consumption of CPO exceeded production in each quarter of 2019. At the beginning of the year, high stock balances and production growth were able to meet increased demand. However, as the year wore on, production growth fell and stocks unwound. This became clear at the end of October, when the price of CPO increased dramatically until the end of the year. The price of CPO cif Rotterdam started the year at US$520 per tonne and then moved in a corridor between US$480 and US$590 per tonne until the end of October. By the end of 2019, it stood at US$860 per tonne. Notwithstanding the strong upward price movement in the last two months of the year, the average price for the year was US$566, US$32 (5%) lower than in 2018. Due to the operation of the export levy and tax in Indonesia, according to Oil World, exporters there experienced an average price of US$525 for the year, a 13-year low.
Unlike CPO, palm-kernel oil did not benefit from increased demand for the production of biodiesel. The year also saw ample supplies of coconut oil, the other lauric oil that is a competitor to palm-kernel oil, and rising stocks of palm-kernel oil. As a result, the average price for the year cif Rotterdam was US$668 per tonne, some 28% below 2018. However, trade did increase significantly during the last quarter, leading to a reduction in stocks, which finished the year at 1.4 million tonnes compared with 1.3 million tonnes a year earlier.