The global palm oil market is expected to tighten this year as floods and older trees constrain production in the world’s second-biggest supplier, according to a major Malaysian growers group.
(Bloomberg) — The global palm oil market is expected to tighten this year as floods and older trees constrain production in the world’s second-biggest supplier, according to a major Malaysian growers group.
Indonesia and Malaysia may only see a marginal increase in output this year of less than 3%, respectively, Joseph Tek, the chief executive of the Malaysian Palm Oil Association, said in a statement. Heavy rainfall and floods in parts of Malaysia will constrict production in the short term because of disruptions to harvesting and logistics, and result in poorer quality fruit, he added.
The number of trees older than 25 years has also expanded, meaning a portion of the plantation will be less productive. Replanting has been slow due to high costs, and the top-producing state in Malaysia — Sabah — now has the country’s highest area of trees above that age, Tek said.
A tightening palm oil market raises concerns over the potential for higher food costs, just as central banks boost interest rates to curb inflation. Weather risks are also climbing, with a shift from La Nina to El Nino expected this year. The change in the weather cycle could parch plantations in Southeast Asia, where nearly all of the world’s palm is grown.
“The last three years of La Nina have caused significant damage to oil palm root systems, which may take time to recover even as the application of rooting fertilizers are ongoing,” said Tek. As a result, fresh fruit bunches may be smaller in size and have lesser oil content, he added.
The tight supply outlook may keep palm oil supported near 4,000 ringgit ($885) a ton in the near term, Tek said. Prices have traded above that level since early February. Other significant events include: China’s rebound after the end of Covid Zero, the ongoing Russia-Ukraine war, as well as Indonesia’s policies to restrict exports and ramp up its biodiesel mandate, he said.
The MPOA is a growers group that represents about 40% of palm oil plantations by area in Malaysia.
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