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Supply Chain

Palm Oil Prices To Keep Rising In First Half Of 2021 On Tight Supply: Asian Producers

Palm oil prices will continue to rise in the first half of 2021 as global supply squeezed by a La Nina weather pattern is set to remain tight, the Council of Palm Oil Producing Countries (CPOPC) said.

Disruptions from persistent heavy rainfall in Southeast Asia means global supply will remain tight until the first quarter of next year, CPOPC said in an outlook published on its website.

'Towards the second half of 2021, adequate rainfall and better crop management incentivised by the current high palm prices will significantly boost production,' it said.

Malaysia's benchmark crude palm oil prices rose to 3,348 ringgit a tonne on Tuesday, staying close to more than eight-year highs hit in November.

Deficit In Global Supply

A deficit in the global supply of vegetable oils as unfavourable weather disrupts production of soy, sunflower, and rapeseed oil would also support crude palm oil prices going into 2021, and encourage a demand switch to cheaper palm oil, CPOPC said.

It cautioned that it sees structural changes in global palm oil supply from 2021 onwards due to a slowdown in new plantings across top producers Indonesia and Malaysia since 2015.

"It must also be highlighted that Indonesia's smallholders replanting oil palms totalling 500,000 hectares by the end of 2022 should sustain adequate palm oil supply for the world," CPOPC said.

Limited Expansion

Indonesia and Malaysia, the two biggest producers of palm oil, have limited expansion of new plantations in response to criticisms of deforestation and the destruction of natural habitats.

While tight edible oil stockpiles in top markets India and China are keeping imports healthy, CPOPC said India could curtail its palm oil purchases if its domestic harvest of other oilseed crops, which have been increasing, are good.

Consumption in Europe is expected to fall due to restaurant closures and lower biodiesel usage hit by the COVID-19 pandemic.

"On the whole, the palm oil outlook in 2021 looks favourable compared with the average prices of 2019 and 2020," CPOPC added.

It estimated palm prices this year would average around 2,600-2,650 ringgit a tonne.

News by ReutersClick subscribe to sign up to ESM: European Supermarket Magazine.

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