The palm oil market in 2018

In 2018, the world produced more than 75 million tonnes of crude palm oil (“CPO”), a new record for production. Record production was combined with little growth in overall demand for imports of CPO. This led to a pronounced increase in CPO stock levels and hence downward pressure on its price, notably during the second half of the year.

In Indonesia, the 2017 rebound in global production following the end of an El Niño weather pattern continued into 2018: output increased by 11% in 2018. This was counterbalanced to some extent in Malaysia, the other major palm-oil producer, where increasing average palm age and difficulty in attracting workers to the industry affected output. Whilst Indonesian production increased by 4.2 million tonnes in 2018, in Malaysia it fell by 0.4 million tonnes. At the same time, whilst global growth in vegetable oil consumption grew by 4.5% in 2018, competing vegetable oils were in plentiful supply. The ready availability of competing oils affected import demand for CPO in India and the European Union, although this was more than offset by increasing demand in China, amongst others. Overall, there was only a modest increase in the total volume of CPO traded during the year. Towards the end of the year, the Indonesian government introduced measures to increase the uptake of biofuel, stimulating demand for CPO. In summary, however, the rise in production dominated the other factors leading to an increase in world CPO stocks at the year end. These reached 15.1 million tonnes, also a record level.

At the beginning of 2018, the price of CPO was US$674 per tonne (cif Rotterdam). Whilst the average price of CPO during the first half of 2018 was only a little lower than this at US$663 per tonne, the price had begun to fall before the end of May.  It fell very steadily from that time before reaching a low point of US$440 per tonne in the middle of November, but then recovering to US$508 by the end of 2018. Over the year as a whole, the CPO price averaged US$598 per tonne, US$116 per tonne (16%) lower than the average of US$714 in 2017.

The production increase in CPO was mirrored in the production of palm-kernel oil. This increase in supply was exacerbated by a surge in production of its main competitor, coconut oil, leading to sharp downward pressure on the price. Unlike CPO, palm-kernel oil did not benefit from the introduction of the measures in Indonesia to increase consumption of biofuel. At the end of 2018, world palm-kernel oil stocks were 1.3 million tonnes, some 27% higher than a year earlier.

Information about the latest crude palm oil price