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Thursday, 07 Jun, 2018

Global palm oil prices seen bullish after 2021 — Rabobank

KUALA LUMPUR (June 6): Global palm oil prices could enter a bullish phase starting 2021, owing to a projected production decrease in Indonesia and Malaysia over the period 2022 to 2025, on the back of land moratorium and slow replanting activities, according to the latest analysis of Rabobank Group. 

Rabobank anticipates the expected decrease in production to be because of the following factors: declining Fresh Fruit Bunches (FFB) yield of aging palm plantations, limited available land for expansion, and insufficient replanting activities in both countries.

“Typically, it takes four years for palm to become commercially viable, yielding close to 10 tonnes of FFB per hectare. It reaches its peak between nine and 17 years, and yields above 25 tonnes of FFB per hectare,” Rabobank senior analyst of grains, oilseeds, food and agribusiness Oscar Tjakra said in a media statement today, following the bank’s recent release of “A Palm Storm Is Brewing” report.

“FFB yield will decrease below 15 tonnes per hectare, as palm trees become older than 25 years. Currently in Malaysia and Indonesia, we estimate that about 36% and 9% of palm are older than 25 years,” Tjakra added.

From 2016 to 2017, Rabobank said the absolute growth of oil palm plantation areas in Indonesia and Malaysia had been 29% and 51% lower, respectively, than the past ten-year average. “This was a result of limited land availability for expansion in both countries, coupled with a relatively low palm oil price environment.”

As for Malaysia, Rabobank estimates the country has around one million hectares of land available to be converted to oil palm plantations. “From 1990 to 2017, a total of 3.8 million hectares were converted to oil palm plantations. Malaysia is currently nearing the limits of agricultural land availability for oil palm conversion and/or expansion."

On Indonesia, Rabobank said a combination of existing and expected new moratorium, along with palm oil buyers’ ‘no deforestation, no peatland, no exploitation’ policies, will limit land availability from the total approved concession areas in Indonesia to only three to four million hectares.

As land availability becomes limited, Rabobank said old oil palm tree replanting programmes are important, in order to increase palm oil production in Indonesia and Malaysia.

“But a combination of large expenditure, which is needed for replanting, and a relatively low palm oil price environment, has slowed down the much-needed replanting programme in both countries.

“This poses the threat of a slowing palm production as of 2022, when palm oil supplies will reflect the scaled-back investments in replanting activities and expansions.”

From 2018 to 2030, Rabobank expects global palm oil consumption to grow at a compound annual growth rate (CAGR) of 2.8%, while production will climb at a CAGR of 1.4%.

“This adds further upward pressure to palm oil prices, particularly as long-term demand from Southeast Asia’s domestic market, India and Africa outstrips production,” the Dutch multinational banking and financial services firm added.

Going forward, Tjakra said the current low-price environment before 2022 could lead to a higher operational efficiency in plantation companies to reduce production costs. It could also accelerate consolidation in the industry.

“In the long run, it is important for producers to replant old plantations to boost supply in the region sustainably. Replanting programmes are also important for smallholder palm plantations, which accounted for 39% and 33% respectively of total palm plantations in Indonesia and Malaysia,” he added.

Malaysia and Indonesia are the largest global producers of palm oil products, with a global market share of more than 85%.

Source : The Edge Markets

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