Malaysian Palm Oil Sector Performance in 2020 and Market Opportunities

The year 2020 posed quite a challenge to the Malaysian palm oil industry. The industry’s overall performance last year was rather mixed. Compared to 2019, CPO production, palm oil stocks, exports, and imports of palm oil declined while total export earnings of oil palm products grew despite registering lower export volume.

Source: MPOB

Total CPO production in 2020 was 19.14 million tonnes, 0.72 million tonnes or 3.6% lower than 2019 production of 19.86 million MT, hampered by labour shortage and the disruptions in the plantations’ FFB harvesting and milling processes caused by the movement control order (MCO) imposed by the government. The yield of fresh fruit bunches (FFB) witnessed a declined to 16.73 tonnes/hectare from 17.19 tonnes/hectare in 2019, while oil extraction rates (OER) dropped by 1.4% to 19.92% from 20.21% in the previous year.

Based on the data available until December 2020, the oil palm area in 2020 decreased slightly by 0.6% to 5.865 million hectares compared to 5.900 million hectares in 2019. Out of this total area, the matured area was estimated at 5.232 million hectares, while the immature area was 0.633 million hectares. The total oil palm area for Peninsula Malaysia was 2.738 million hectares, while the total oil palm area for Sabah and Sarawak is 1.543 million hectares and 1.548 million hectares respectively.

Malaysian palm oil stocks in December 2020 plunged to 1.26 million tonnes, their lowest level in 13 years since July 2007. The drop in Malaysian palm oil inventories can be attributed to tight production and higher exports of CPO in the final months of 2020, taking advantage of the suspension of export duty on crude palm oil that is expired in January 2021.

Top 10 Major Palm Oil Importers (By Volume, MT)

Country Jan-Dec 2020 Jan-Dec 2019 Change
(MT)
Change
(%)
China 2,730,660 2,490,503 240,157 9.64
India 2,726,956 4,409,511 (1,682,555) (38.16)
Netherlands 1,072,952 880,728 192,224 21.83
Pakistan 1,003,723 1,085,546 (81,823) (7.54)
Philippines 693,026 629,086 63,940 10.16
Turkey 615,872 709,262 (93,390) (13.17)
U.S.A 540,349 542,161 (1,812) (0.33)
Kenya 520,758 193,340 327,418 169.35
South Korea 453,278 423,105 30,173 7.13
Italy 439,053 476,279 (37,226) (7.82)
Others 6,572,238 6,631,543 (59,305) (0.89)
Total 17,368,865 18,471,064 (1,102,199) (5.97)

Total exports of Malaysian palm oil in 2020 amounted to 17.368 million tonnes, lower by 1.103 million tonnes or 5.97 % compared to 18.471 million tonnes registered last year. The decline is largely attributed to lower exports to India, traditionally the largest buyer of Malaysian palm oil. The restrictions on the importation of refined palm oil since January 2020 have greatly impacted the amount of palm oil export from Malaysia going into the country, especially during the first six months of 2020. However, CPO exports to India started picking up again since July 2020 after the exemption of CPO export duty by the Malaysian government.

Due to the Covid-19 pandemic, the demand for palm oil was affected due to travel and movement restrictions to curb outbreaks and disruptions to the supply chain. As a result of the weak demand, Malaysian palm oil exports to countries such as India, Pakistan, Turkey, and few others have declined. However, some importing countries like the Netherlands, the Philippines, Kenya, and South Korea have shown some improvement in Malaysian palm oil import performance notwithstanding the pandemic.

China was the largest importer of Malaysian palm oil with an intake of 2.731 million tonnes in 2020. This was followed by India with 2.727 million tonnes, Netherlands 1.073 million tonnes, Pakistan 1.004 million tonnes, the Philippines 0.693 million tonnes, and Turkey 0.616 million tonnes.

Despite lower palm oil export volume in 2020, total export revenue, however, increased by 7.0% to RM72.30 billion as compared to RM67.55 billion in 2019 due to higher prices of crude palm oil especially in the second half of last year. According to MPOB, the average CPO price in 2020 was RM 2685.50 per tonne compared to the 2019 price of RM2079.00 per tonne.  Considering the various challenges faced domestically and globally, the Malaysian palm oil industry in 2020 has managed to navigate the hurdles successfully and adapted to the new norms, and maintained its reputable performance.

Palm Oil Market Opportunities

The evolution of consumer lifestyles from all over the world has resulted in many areas of potential expansion for the palm oil industry. With increasing consumer awareness and exposure to education, the internet, and social media, the versatility of palm oil and its uses will continue to come to the forefront, providing opportunities globally.

1. Asia Pacific

The Asia Pacific is one of the markets where the palm oil industry could further develop.  Expanding growth in the HORECA sector and increasing middle-class consumers will be the driving factors for palm oil demand in Asia Pacific countries especially the Philippines and Myanmar. A number of foreign hoteliers are racing to capture Myanmar’s lucrative tourism market, such as Lotte, Pan Pacific, GCD Hospitality, and AccorHotel. International and popular fast-food chains such as KFC, Lotteria, Pizza Hut, Burger King, Marry Brown, etc. are emerging in Myanmar.

Malaysia as the main supplier of palm oil for Japan and South Korea should continue to pursue and dominate the markets. Palm stearin is used in margarine and shortening production in both countries, particularly in the food manufacturing industry such as instant noodles. In addition to growth in the food sector, growth in the bio-energy sector in Japan will also provide opportunities for Malaysian palm oil exporters. Japanese Government is very aggressive in expediting the adaptation of their renewable energy usage. In their Fourth Strategic Plan, they set the renewable energy share target at 24% by 2030 from the current renewable energy share of 18%. This scenario has led to the increase in demand for palm products such as stearin and palm kernel shells in their energy sector specifically in their biomass plant. Japan’s first palm oil power plant opened in 2014.

China’s rapid development and changes in the consumer’s behaviour have created opportunities for higher usage of palm oil products over the years. About 70% of palm oil is consumed in the food sector, including cooking oil, instant noodles, bakery, confectionery, chocolate, ice-cream, etc. Other than palm oil, palm products also have a good share in non-food sectors, such as oleochemicals sectors, etc. Following China’s continuous reform policy, the growth of inner China townships has been robust in recent years. The development of the inner China area generated an emerging and new growth market for palm oil products in rural areas. Provinces such as Xinjiang, Sichuan, Chengdu, and Xi’an are popular tourist cities that provide opportunities for higher palm oil product sales. The migration from rural to urban cities will improve the lifestyle and buying power per capita of the rural Chinese. This will encourage the usage of refined oils and hence will create more opportunities for palm oil import as it increases opportunities for palm oil to be promoted for blending with other soft oils. 

2. Sub-Continent

Driven by its huge population, India is the world’s leading importer of edible oils especially palm oil. In December 2020, the Indian government has cut palm oil import duties to 27.5% from 37.5% in order to curb rising food costs. This latest move will boost palm oil imports by India in 2021. While traditional ghee is still the predominant cooking medium in Pakistan, palm oil application is crucial in specialized oils and fats used in the Pakistani market. As local production is less than 10% of the total requirement, Pakistan relies heavily on the import of edible oil. Malaysia exported mostly RBD palm olein to Pakistan, which accounted for 46% of total export to Pakistan, followed by CPO and cooking oils with export shares of 19% each.

3. MENA

MENA region imported close to 5 million MT of palm oil of which 2 million or 42% is of Malaysian origin.  Turkey, Iran, and Saudi Arabia are the region’s leading importers of Malaysian palm oil with a total import share of 68%. The signing of the FTA between Malaysia and Turkey in 2015 contributed to the rise of Malaysian palm oil in the market, giving Malaysia a competitive advantage over Indonesia in terms of palm oil market access to Turkey.  With a share of 96%, Malaysia currently dominates the Turkish palm oil market. The demand for food will continue to increase in Turkey with the situation in the Eastern borders that had brought in an influx of refugees into the country. Big corporations that initiated expansion plans through physical investments and acquisition have commitments to make and will continue to produce food to cater to the needs of local demand.

4. The Americas and Sub Saharan Africa

Palm oil is the preferred choice of the middle income in Haiti and is widely utilized in the preparation of diverse Haitian dishes including snacks, fried and deep-fried foods, as well as in the food processing industry. The shift of Mexican consumers towards healthy food choices and edible oils will generate opportunities for the palm oil industry in Mexico. Despite having local palm oil production, the Sub-Saharan Africa domestic requirement is greater than the region can supply on its own. Imported palm oil has a very important role to play in the market and in the past ten years, the refining industry in Sub-Saharan Africa has expanded rapidly due to increasing demand from the growing population and better economic conditions. As the country with the largest population in Sub-Saharan Africa, Nigeria is the largest importer and consumer of palm oil in the region. In addition, locust invasion in Kenya had destroyed many local staple food crops such as rice, maize, and potato crops, which is expected to increase the demand for palm oil in the region. The signing of the African Continental Free Trade Agreement (AfCFTA) in January 2018 and ongoing ratifications by 27 countries so far, is an important development milestone for the African continent.

Conclusion

Palm oil is used globally in both food and non-food industries. Approximately 50% of products on supermarket shelves contained palm oil as such cooking oil, margarines, confectionery fats, and ice cream. On top of that, palm oil is also widely blended with other oils in retail markets and restaurants due to its price advantage. Palm oil products also find wide applications in the non-food sector, especially in the production of pharmaceutical products, oleochemical products and biodiesel. The rapid economic growth and its implication on people’s living standards has been a catalyst in the growing global consumption of edible oils particularly palm oil.

Prepared by Iskahar Nordin ,Zainuddin Hassan and Nur Adibah Mohd Razali

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