Malaysia: Palm oil sector to get boost in second half of 2023

The accession of the United Kingdom to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), improved labour conditions and a softer ringgit are expected to be the catalysts for the palm oil sector to be fruitful in the second half of 2023 (2H 2023).

While a weaker ringgit, which is currently trading at RM4.57 against the US dollar, would seem to be unsettling in general, plantation analysts saw it as an advantage to further boost exports of palm oil.

Concurring with that, the industry regulator Malaysian Palm Oil Board (MPOB) said the depreciation of the local note versus the greenback would help increase demand for crude palm oil (CPO).

This would in turn help maintain the commodity’s price firm in the near term, exceeding the level of RM4,000 per tonne.

Analysts also viewed the sector to experience an upward momentum in 2H 2023 if there were no resolution to Russia’s withdrawal from the grain deal, badly impacting Ukraine’s capacity to export its sunflower oilseeds and oil, thus boosting demand for more palm oil.

At market close last week, CPO was traded above RM4,000 per tonne amid the uncertainties surrounding the Ukrainian grain exports through the Black Sea.

“The CPO price is expected to be stable until the end of the year,” MPOB director-general Datuk Dr Ahmad Parveez Ghulam Kadir told Bernama recently.

However, he voiced concern over the El Nino phenomenon that would take place in 2H 2023, with production likely to drop between one and three million tonnes next year.

He said the complete development of the oil palm inflorescences would generally take about 33 to 36 months.

Therefore, if the El Nino condition would get severe by the third quarter of 2023, the earliest impact of El Nino could only be seen in 2024, he added.

Separately, SPI Asset Management managing partner Stephen Innes was bullish on the plantation sector (palm oil) saying that it could benefit from the United Kingdom’s (UK) entry into the CPTPP.

“Malaysia has successfully sought Britain to cut its palm oil tariffs which currently range up to 12 per cent to nil. Immediately on entering the pact, this should drive more exports to the UK,” he said.

Bilateral trade between the two countries exceeded US$7.3 billion (US$1=RM4.57) in 2022 with the UK recording a trade surplus of some US$786 million.

Data released by the MPOB showed that production of CPO for 1H 2023 slipped by 2.3 per cent to 8.08 million tonnes from the 8.27 million tonnes attained in the corresponding period of 2022, no thanks to the lower fresh fruit bunches.

As for stocks, year-on-year, palm oil inventory in June 2023 rose by 0.07 million tonnes or 4.5 per cent to 1.72 million tonnes compared to 1.65 million tonnes in June 2022, driven by lower palm oil exports.

During 1H 2023, the total export of palm oil and other palm-based products decreased marginally by 15,436 tonnes or 0.1 per cent to 11.45 million tonnes as against 11.46 million tonnes during the same period in 2022 due to lower demand from major importing countries.

Demand for palm oil was reduced especially from the European Union (EU), India, the Philippines, Saudi Arabia and the United Arab Emirates. Meanwhile, its top five export markets were India, China, the EU, Turkiye and Kenya.

In terms of value, total export value declined by RM22.38 billion or by 33 per cent to RM45.55 billion against RM67.93 billion for 1H 2022 due to lower export prices.

The CPO was traded lower by 38.4 per cent, or RM2,433.00 to RM3,897.00 per tonne, during 1H 2023 against RM6,330.00 per tonne in 1H 2022, influenced by weaker soybean oil prices on the Chicago Board of Trade and China Dalian Commodity Exchange.

The highest and lowest traded prices during 1H 2023 were RM4,217.50 per tonne (April) and RM3,525.00 per tonne (June), respectively.

One of the main challenges that remain unresolved and continue to plague the Malaysian oil palm industry is the problem of labour shortage and high dependence on foreign workers.

Ahmad Parveez shared that although the government has encouraged the plantation sector to adopt and increase the level of mechanisation, the percentage of mechanisation adoption in the sector is still low, especially for harvesting activity.

Nevertheless, huge progress has been made in all areas of sustainability, expedited by the implementation of the Roundtable on Sustainable Palm Oil (RSPO) and the Malaysian Sustainable Palm Oil (MSPO) besides several measures and initiatives by the government.

Currently, almost 97.5 per cent of oil palm planted areas have been MSPO-certified under the MSPO scheme.

Deputy Prime Minister and Plantation and Commodities Minister Datuk Seri Fadillah Yusof’s maiden trip to Europe since taking office ended on a positive note following the EU policymakers’ pledge to recognise the MSPO certification in its due diligence guidelines to ensure the Malaysian palm oil entering the region is sustainable.

The eight-day joint mission with Indonesia under the Council of Palm Oil Producing Countries was held in response to the implementation of the European Union Deforestation Regulation (EUDR) announced by the EU on Dec 6, 2022, which aims to prevent deforestation due to agricultural activities.

During one of the interviews with Fadillah, he had called Malaysia and Malaysians to adopt a “hand in glove” strategy to defend the versatile crop – palm oil – against unjust regulations.

Meanwhile, as a follow-up to the joint mission, the director-general for the Environment of the European Commission Dr Florika Fink-Hooijer visited Indonesia and Malaysia on June 26-28.

Several meetings conducted resulted in the agreement to establish a joint task force comprising representatives from the governments and relevant stakeholders from both countries.

The task force is aimed to examine the situation for relevant commodities, namely palm oil, wood, rubber, coffee and cocoa, in Indonesia and Malaysia within the scope of the EUDR for the EU market.

The first meeting of the joint task force is scheduled for August 2023.

The minister also made a short trip to Kenya in July and is expected to make another two trips to China and India to promote and perhaps deepen partnerships with these countries.

Another point worth highlighting is the recognition of palm tocotrienol-rich fraction or TRF by the Health Ministry to be used on the labels of food products.

“This is a huge progress that benefits manufacturers and consumers as well as the palm oil industry,” MPOB said, adding that with the recognition, food processing manufacturers that use palm-based tocotrienol can state on the labels of their products.

MPOB had applied for the ministry’s approval about 10 years ago after it received the United States Food and Drug Administration’s “generally recognised as safe” approval for TRF to be used in food products.

TRF is an antioxidant and may help reduce oxidative stress. The other functional claim is that TRF may help improve cognitive function.

Tags: CPO, demand, CPTPP, United Kingdom to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, palm oil sector, exports, MPOB, Crude palm oil, palm oil, Эль-Ниньо, Malaysian Palm Oil Board