Malaysia’s palm oil industry recorded multi-year lows for output, stock levels, exports in 2021.Palm oil is a key driver of the Southeast Asian country’s agriculture and agro-based sectors.
Covid-related restrictions created a shortage of much-needed foreign workers on palm oil plantations that lowered supply by 5% from 2020 to 18 million tonnes, the lowest after the La Niña weather pattern -which tends to bring increased rainfall- ravaged harvests in 2016 when production barely broke 17.3 million tonnes, according to the Malaysian Palm Oil Board (MPOB).
Monthly average inventories stood at just 1.6 million tonnes while export sales fell 11% on the year to an all-time low of 15.56 million tonnes, MPOB data showed.
Palm oil-based biodiesel sales decreased by 4% from 2020 to 362,000 tonnes, a four-year low. The downtrend is expected to persist in 2022 as the EU ban on palm oil for biodiesel has intensified. Under the bloc’s renewable energy directive, palm oil-based fuels are to be phased out by 2030, since palm oil has been classified by the EU as resulting in excessive deforestation and can no longer be considered a renewable transport fuel.
“We do not see a major improvement in production until the second quarter of 2022 due to the underlying labor issue alongside the seasonal factor,” Aditya Jeripotula, head of research at commodities firm TransGraph Consulting told Platts.
According to Sathia Varqa, founder of Singapore-based Palm Oil Analytics, there is a shortage of about 70,000 oil palm plantation workers in Malaysia.
Last year, palm oil benchmark futures rocketed to an all-time closing high of 5,071 ringgit ($1,213) a ton. Palm oil bulls will likely roar into 2022, as the rally is likely to continue in the $1,000/mt range, but could be dampened by higher soybean oil output, the Council of Palm Oil Producing Countries said in its full year 2022 outlook. Palm, soybean, and sunflower oil compete for share in the global vegetable oils market.
Last week, palm oil booked its biggest gain in three months as output expectations were hit by concerns over adverse weather in key growing areas in Malaysia.
Last month, the UN’s FAO Vegetable Oil Price Index declined 3.3% with weaker quotations for palm oil and sunflower oil reflecting subdued global import demand. However, for 2021 as a whole, the FAO Vegetable Oil Price Index reached an all-time high, increasing 65.8% from 2020.
At the end of 2020, the oil palm covered about 5.9 mil ha or 18% of total land area in Malaysia; producing 19.14 mil tonnes of palm oil and 2.20 tonnes of palm kernel oil. The palm oil industry also provided RM 73.25 bil in export revenues and accounted for 3.6% of Malaysia’s total GDP. Palm oil has also elevated Malaysia to become the world’s second largest palm oil producing and exporting country. Today, Malaysia accounts for 25.8% and 34.3% of the world’s palm oil production and export; respectively, according to MPOC. Palm oil is the world’s most-consumed edible oil.
With reporting by Platts, Argus media, MPOC, FAO