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<\/p>\nNusa Dua, BALI — Market uncertainties and slowing economies are clouding the outlook for global palm oil demand, with prices expected to decline next year after having hit record highs in the wake of Russia’s invasion of Ukraine.<\/p>\n
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Some industry players and analysts who gathered at the 18th Indonesia Palm Oil Conference (IPOC) on the resort island of Bali last week forecast that Malaysian palm oil futures for delivery in three months — a global benchmark of the commodity — to hover between 3,500 ringgit ($738) and 5,000 ringgit per ton through the first quarter of 2023.<\/p>\n
The price stood at around 4,400 ringgit per ton in the past week after hitting 7,000 ringgit between March and May. The record prices occurred as the Russia-Ukraine fighting disrupted delivery of sunflower oil, of which Ukraine is a top producer, sending prices of global vegetable oils soaring.<\/p>\n
It also prompted Indonesia, the world’s largest palm oil producer, to impose a three-week ban on exports of the commodity between April and May 2022 amid a domestic cooking oil crisis.<\/p>\n
“Historically, the current prices are still high and will remain stable until the end of the year,” Fadhil Hasan, head of foreign affairs at the Indonesian Palm Oil Association (GAPKI), told conference participants on Friday, 4 November 2022. However, citing a correlation between the global economic situation and palm oil prices, he added that they are expected to fall in 2023 “due to weak demand from … declining economic growth.”<\/p>\n
Demand from China, the largest importer of Indonesian palm oil, is expected to remain under pressure over the next year as long as Beijing maintains its zero-COVID policy. Data from GAPKI shows China’s imports of Indonesian palm oil fell 30% this year as of the end of August to around 3 million tons versus the same period in 2022.<\/p>\n
The China decline is partially offset by demand from India and Pakistan — the second- and third-largest importers of Indonesian palm oil — which is expected to remain strong over the next few years.<\/p>\n
Still, palm oil prices are facing further downward pressure over the medium and long term as European Union opposition to the commodity due to environmental concerns continues to gain steam, especially for use in biofuel.<\/p>\n
The EU under its Green Deal policy has adopted proposals to cut its net greenhouse gas emissions at least 55% by 2030 compared with 1990 levels — including through a gradual phase-out of biofuel feed-stocks with high deforestation risks such as palm oil. EU governments and the bloc’s parliament are reportedly planning the next round of negotiations on a new EU anti-deforestation law this week, which could accelerate the phase-out.<\/p>\n
GAPKI expressed concerns over repercussions in Indonesia’s palm oil industry. “Either [the] EU doesn’t understand the existential threat that the law will cause to millions of Indonesian small farmers, or it simply doesn’t care,” the association said in a written statement on Friday, adding that palm oil farmers “will be blocked from the EU market, damaging Indonesia’s economic growth and killing jobs.”<\/p>\n
Officials in Indonesia and neighboring Malaysia, another major palm oil producer, have repeatedly called the EU’s anti-palm oil move “discriminatory” and “protectionist,” slamming the use of “palm oil free” labels in food products and other items sold in European supermarkets.<\/p>\n
James Fry, founder and chairman of British consultancy LMC International, told the Bali conference that EU imports of palm oil for food this year have stabilized, as users seemingly turned to it after Russia blocked the Ukrainian sunflower oil trade. However, non-food demand, mainly for biofuel, is falling sharply due to the bloc’s palm oil policies.<\/p>\n
“So if China is disappointing, the EU as a market for palm oil is a disaster,” Fry said.<\/p>\n
Meanwhile, Thomas Mielke, executive director of German agricultural research company Ista Mielke, said production of other vegetable oils including soybean, rapeseed and canola oils in Latin America, Canada and elsewhere is expected to grow. He added ample supplies of these oils are expected to lead to a “downward trend” in prices during the first half of 2023. This poses another downside risk for palm oil, traditionally the cheapest among edible oils. Mielke said palm oil currently accounts for half the world’s exports of all vegetable and animal oils and fats.<\/p>\n