The Council of Palm Oil Producing Country (CPOPC) is upbeat that the prices of palm oil will recover in the second half of 2020 as the COVID-19 outbreak pushed consumption up and production down.
“Demand for palm oil is poised to recover as lockdowns across the globe begin to ease and major consumers, including China and India, are back in the market boosting purchases to replenish stocks,” CPOPC said in its latest market outlook entitled “Palm Oil Supply and Demand Half Review 2020.”
The report, a copy of which was made available to the Palm Scribe Wednesday (22/7) added that a considerable demand will also be underpinned by the implementation of biodiesel blending mandates in major palm oil producing countries, including world’s top producer, Indonesia.
It said that the B30 biodiesel mandate in Indonesia was key to palm oil price direction as it would help increase CPO prices and supply into the domestic market. It may implement B40 in 2021, adding to the positive sentiments towards the price of palm oil in 2020. The attractive CPO price discount against other edible oils was another plus factor.
CPOPC also said that total palm oil production in Indonesia and Malaysia, the two top producers which supply about 85 percent of the global market, was expected to be lower this year due to last year’s dry weather and lower fertilizer application, and current lower labor supply.
The potential of La Nina hitting in the second half of the year will further dampen any prospects of increased production, it added.
Malaysia’s CPO output is expected to stand at between 19.3 to 19.5 million tons in 2020 compared to its 2020 output of 20,0 million tons. Indonesian production, meanwhile is forecast to remain flat or increase by just one million tons to 44 million tons, CPOPC said in a related Palm Oil Supply and Demand Outlook, Report 2020.
“Gradual opening up of major markets post COVID-19 starting from June 2020 is expected to make the price outlook bullish,” CPOPC said, primarily referring to China and India.
In China, palm oil possesses good opportunity as the country’s soybean crushing activity and imports of rapeseed and rapeseed oil are expected to fall. Its palm oil inventory is also reported to be depleting, opening the door to more imports.
The EU demand for palm oil is also expected to improve owing to a decline in rapeseed production due to detrimental weather and lower seed crushing activities.
“It is also noteworthy to underscore the increase in oleochemical demand both for local consumption and exports,” following the COVID-19 epidemic, it added.
The industry needed more palm oil to produce hand-sanitizers and soaps, thanks to the COVID-19 outbreak. Such demand was likely to sustain until the end of the year as COVID 19 protocol remained implemented across the globe.
“There is a possibility of market rebounding given the ultra-loose monetary policies of many central bankers and governments’ stimulus packages,” CPOPC added.
“In other words, if the CPO supply is limited due to lack of fertilizer applications and extreme weathers, the biodiesel implementation will further limit the palm oil supply from both Indonesia and Malaysia, therefore, the outlook for palm oil in 2020 will be positive.”