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Supply Chain

Uptick In Palm Oil Output This Year Insufficient To Meet Demand: Analyst

Palm oil production in each of the world's top producers Indonesia and Malaysia is likely to rise about 3% this year, but it would not be enough to meet global edible oil demand, leading analyst James Fry said on Monday.

Adverse weather in South America and Canada has curbed the supply of soybean oil and rapeseed oil, while there is a lack of availability of sunflower oil due to Russia's invasion of Ukraine, Fry, chairman of agribusiness consultancy LMC International, told Reuters in an interview.

"The high (palm oil) prices are going to be around, I fear, for the consumer," he said.

The benchmark palm oil contract FCPOc3 on the Bursa Malaysia Derivatives Exchange climbed to an all time high of 7,108 ringgit a tonne last week. The market was up 5% at 6,580 ringgit a tonne by 08:51 GMT.

Supply Disruptions

Commodities have rallied to multi-year highs in last two weeks as supply disruptions due to Russia's escalating invasion of Ukraine continued to roil markets.

In 2021, Indonesia produced 46.89 million tonnes of palm oil, while Malaysia's output was 18.1 million tonnes. L1N2U804D

Fry said the war in Ukraine would halt sunflower crushing and oil exports, while the fighting meant there would be much less sowing taking place.

"That is going to have an impact going forward," he said.

Russia and Ukraine account for 80% of global exports of sunflower oil, which competes with palm oil.

Read More: Palm Oil Prices Rise As Ukraine Conflict Halts Sunoil Supply

Fertiliser Prices

The analyst said world output could be also impacted by lower availability of fertiliser from the Black Sea region.

Export of fertiliser from Ukraine, Russia and Belarus is going to take a hit, Fry said on the sidelines of an industry conference in Kuala Lumpur.

"The cost of fertiliser will shoot up, that going to be a problem for farmers planning next year's crop. Smallholders may stop applying so much."

Higher palm oil prices are likely to reduce consumption.

"There will be squeeze on people's income," Fry said. "That will tend to reduce people's spending power."

News by Reuters, edited by ESM – your source for the latest Supply Chain news. Click subscribe to sign up to ESM: European Supermarket Magazine.

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