Global Palm oil prices soar as stocks fall

By Jess Halliday and Simon Pitman

- Last updated on GMT

Related tags: Palm oil

Oilseed analysts are predicting a squeeze on supply of Malaysian palm oil for months to come, as prices are pushed up by farmers’ inability to invest in inputs and poor extraction rates – while demand for fried and oily food is not abating.

Malaysia is the world’s largest exporter of palm oil for food and cosmetic uses, totalling 15.4 million tonnes in 2008 according to the Malaysian Palm Oil Council. This means that tight supply and unfavourable growing conditions can have a major impact on prices and availability for industrial users.

However while prices climbed down from dizzying in the second half of 2008, palm oil futures hit a new seven-month high on Friday, when contracted oil for June closed at 2,299 ringgit ($636.3) per tonne on the Bursa Malaysia Derivatives Exchange.

Palm oil key ingredient for soaps, shampoos and deodorants

​Palm oil is a popular ingredient in personal care where it is used most commonly as a hardener for vegetable oil soaps as well as a range of other personal care products, including shampoos and deodorants.

The Times​ reported that demand for edible oils from newly industrialized countries is not abating in the downturn while sales volumes of personal care products have also remained stable during the economic crisis.

In fact, according to an article in The Times​, palm oil consumption by October palm oil demand looks set to outstrip supply by about a million tonnes. IOI, a major planter in Malaysia, is expecting the high prices to remain at least until the end of this year.

Thomas Mielke, analyst for Oil World in Germany, said part of the problem is that oilseed farmers are having to invest in the necessary inputs so they can meet demand. “Lack of credit is a problem for farmers everywhere, and it is forcing them to cut back on fertiliser,”​ he told the newspaper.

Low stocks in Malaysia

According to OSK Research, in the last month Malaysia’s inventory fell by 12.7 per cent to 1.363 tonnes. However production recovery in the second half of the year would replenish stocks – “if the rise is not matched by an increase in exports,”​ the analyst told Business Times​.

Meanwhile, The Star​ reported today that the supply story could be the result of issues that will take longer to address, and will require improved agricultural practices. It said that the oil-extraction-rate, especially in Peninsular Malaysia, is below 20 per cent for the past 20 years, the result of poor quality soil used to grow palm oil in the 1960s.

Whereas oil palm in Sabah and Sarawek tends to be on land recently converted from rainforest, on the peninsular the land was used to plant rubber trees, and prior to that tapioca and gambir.

The Star reports that the Malaysian government recently initiated programs to “encourage more aggressive replanting of unproductive oil palm trees with superior clones among smallholders”.

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