Palm oil prices expected to bounce back in 2019, says minister

Primary Industries Minister Teresa Kok says the government will spearhead efforts to increase low yields among small players in the palm oil industry. (Bernama pic)

PETALING JAYA: The government is optimistic over the predicted performance of palm oil in 2019, despite the current challenges faced by the industry.

Primary Industries Minister Teresa Kok acknowledged that the cost of production had been slowly creeping up due to higher input costs and rising wages for plantation workers.

“While most plantation houses are able to absorb this during low cyclic prices, the challenge is for our smallholders. Already compromised by lower yields per hectare, these low prices are dramatically eroding into their overall returns and constitute a threat if prices continue to retreat further,” she told FMT.

A recent Bloomberg article noted the various challenges seen by the Malaysian palm oil industry such as rising supply, slowing demand, the US-China trade tensions and the allegations over the industry’s impact on wildlife by environmental groups.

It also said that Malaysian palm oil prices have plunged near their lowest in more than three years, and was expected to end the year at RM2,000 a metric ton compared to RM3,200 a metric ton at the end of 2016.

Primary Industries Minister Teresa Kok.

“It is definitely a challenging period for Malaysian palm oil producers and exporters,” Kok said.

She said palm oil prices had progressively fallen, especially in the past three months, which she attributed to the overall rising outputs in the two largest producing countries – Indonesia and Malaysia. Other reasons are higher stock levels and lower imports among some of the major importing countries.

However, Kok pointed out that palm oil was not the only oil with languishing prices, production and trade challenges.

She said oversupply and overall low demand had affected the prices of other competing vegetable oils too.

The pressure on prices also comes from uncertainties in the currency trade, the minister said, adding that the hardest hit was India, which is a large importer of palm oil. It was reported that India imported less palm oil than predicted during the recent festive season.

However, Kok said the markets indicated positive trends on the traded prices in the future.

“Traders are more confident that post-end 2018 and into the early part of the new year, prices should go beyond the RM2,000 level,” Kok said.

She said generally, 2019 is being predicted as a better financial year for palm oil.

She said some analysts forecast a higher demand for the commodity by mid-2019 that should surpass its supply. “Prices would move much further north than current traded values.

“On our part, the move towards B10 palm biodiesel will also help reduce stock levels and support palm oil prices. We are also confident that through some of our strategic market penetration activities already on-going, uptake of Malaysian palm oil in large traditional markets like India, China and Pakistan will pick up.

“In addition, new markets in Asean, Africa and the Middle East, bolstered by their large population, are hungry for more affordable palm oil and our marketers are already active in these regions,” Kok said.

For the small players in the industry, she said, a rethink in strategy was overdue, and the ministry would spearhead efforts to increase their low yields for better output.

She added that this would result in them enjoying higher overall income, which would not be easily threatened by cyclical prices as seen in the current quarter. -FMT