Palm oil price forecast to dip further on falling demand and higher crop yields

By Simon Pitman

- Last updated on GMT

Related tags Palm oil Agriculture

The price of palm oil, which is used as a binding ingredient in cosmetic formulation, is predicted to fall in the months ahead as increased crop yields and falling demand take effect.

After more than doubling in price between the years 2009 – 2010 on the back of escalating demand, costs for the commodity have already fallen back over the course of this year by around 20 percent.

And the cost is set to fall further, with the commodity price in Malaysia, currently the world’s largest producer of palm oil, forecast to fall from a current rate of around $1,000 per metric ton to $879 per metric ton by the end of the year.

Palm oil prices forecast to dip further

The forecast figure was a result of a poll of ten oil commodity analysts who were questioned by Bloomberg at the global India conference, held in Mumbai last week.

Speaking at the conference, Dorab Mistry, director of Godrej International said: “The increase in world supply will outstrip the increase in world demand for the first time in the last three years. This is very significant.”

Palm oil producers have been racing to meeting rising global demand for palm oil in recent years, which has led to criticism over environmental concerns due to the deforestation necessary to increase land devoted to the crop’s cultivation.

Falling demand might reduce environmental pressures

However, all this might be about to change as analysts believe that deepening concern over the state of the global economy is pushing big industrial corporations to reduce demand for palm oil, as they de-stock over the possibility of another recession.

Over the next few weeks this trend is expected to be duplicated for a long list of commodity prices, many serving as raw materials for a wide spectrum of cosmetic personal formulations.

This trend is highlighted by the fact that The Standard & Poors GSCI index, which charts the price of 24 leading metal, energy and agricultural commodities is currently at its lowest rate in nearly a year.

Should the recession hit, a reverse in the rising commodity prices that have hit the profits of many of the major cosmetic companies in recent quarters, could prove to be little reason for celebration as lower consumer demand is also likely to follow suit.

However, the longer-term picture looks rosier. According to figures from The Economist, global production of palm oil was estimated to have hit around 47 million tons in 2010. Although the vast majority of this ends up in the food category, it is estimated that around 5 percent of the total is used in cosmetics and personal care product, a figure that, until recently, was continuing to expand.

However, in the long-term demand for palm oil is excepted to continue to rise sharply in line with world population growth and growth of biodiesels. Greenpeace estimates that, compared to the year 2000, the level of palm oil production will double in volume by the year 2030, while it is expected to triple by 2050.

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