Expert sees consumption surging with supply still tight

PETALING

JAYA: The growing world dependence on palm oil amid the severe tight

supply situation will limit the price of the commodity from falling

below RM2,000 per tonne experienced in late 2008, according to an

international commodity expert.

Hamburg-based ISTA Mielke GmbH executive director Thomas Mielke

expects the current world palm oil consumption from 38 million tonnes

to surge to 63 million tonnes in 2015 and increase further to 77 million

tonnes in 2020.

This would also translate into an annual average

growth rate of 3.1 million tonnes, which would be contributed by the

world’s largest producers Indonesia and Malaysia, he said.

Yesterday, the benchmark April CPO futures contract closed RM41 higher at RM3,931 per tonne, the highest level since March 2008.

However,

palm oil will likely face a moderate downward price pressure by April

on slightly improved production but the decline may be cushioned by

continued bullishness in other major vegetable oils like soybean,

rapeseed and sunflower.

“Oil World (a publication of ISTA)

since 1958 had never seen such a severe supply-and-demand situation in

terms of lower production and depleting stocks in most world major

agriculture crops, vegetable oils and grains currently,” Mielke said at

the on-going Pointers on Price Trends Internet seminar organised by the Malaysian Palm Oil Council (MPOC).

“In

January, prices of palm oil, other vegetable oils, oilseeds, grains and

several other agricultural products had approached or partly exceeded

the record highs registered in 2008. The annual growth rates of world

consumption of vegetable oils have virtually doubled since the late

90s.”

In fact, producers worldwide have been struggling to raise

supplies sufficiently to cover demand. Thus, there is an urgent need to

expand plantings of the individual oilseeds, grains, cotton and sugar to

sufficiently raise production and allow for some recovery in depleted

stocks.

The dynamics for oil palm planting expansion in Malaysia

and Indonesia had slowed down partly due to strong pressure by the NGOs.

In Indonesia, the slowdown in planting in 2009 and 2010 had jeopardised

production while severe labour shortage in Malaysia also pushed the

country’s oil extraction rate lower in 2010, Mielke said, adding: “In

the coming years, Malaysia and Indonesia will need to increase their

replanting activities while adhering to the consuming countries’

requirements on sustainability.”

Oil World in its latest forecast expects world palm oil production to increase by 3.2 million tonnes to 3.4 million tonnes this year.

“However,

the supply situation will not likely recover in 2013 onwards should the

existing production and depleting stocks not be replenished to meet the

surging demand from China, India and other developing economies,” said

Mielke.

In Europe, he said, biofuel industries had reduced consumption of vegetables oils because of their record-high prices.

“This will see total European consumption of oils and fats for biofuels declining this year for the first time ever,” he added.

Meanwhile, MPOC chief executive officer Tan Sri Dr Yusof Basiron in summarising the Outlook for 2011 Challenges and Opportunities for Palm Oil said

the shortage in supply among others was due to the increasing world

population leading to higher demand and consumption, lack of agriculture

land due to competition among other grains and higher cost of crude oil

leading to higher production cost of vegetable oils.

“The

increasing demand for vegetable oils, especially in China, India, Europe

and the United States for food and non-food items will trigger the

growth in consumption,” he said.

In addition, the plan by Europe and the United States for biofuel development will lead to demand increases.

Europe

with its biofuels mandate is likely to see the need to increase its

consumption by close to 500,000 tonnes while the United States, with its

recent extension of biofuels tax credit, should see an increase in

demand by 300,000 tonnes.

Source : Business Times by Hanim Adnan