Floods and old trees in Malaysia will shrink the palm oil market
The global palm oil market is expected to decline this year as floods and old trees limit production of the world’s second-biggest supplier, according to a major Malaysian producer group.
Indonesia and Malaysia may see only modest increases in production this year, less than 3 percent respectively, Malaysian Palm Oil Association chief executive Joseph Thek said in a statement. He added that heavy rains and flooding in parts of Malaysia will reduce production in the short term due to disruptions in harvesting and logistics, leading to deterioration in fruit quality.
The number of trees older than 25 years has also increased, meaning that part of the plantation will be less productive. Replanting has been slow due to high costs, Tek said, and Malaysia’s number one state, Sabah, currently has the largest area in the country with trees older than that age.
The tightening of the palm oil market raises concerns about a possible rise in food prices as central banks raise interest rates to curb inflation. Weather risks are also on the rise, with a shift from La Niña to El Niño expected this year. A change in the weather cycle could cause plantations to dry up in Southeast Asia, where nearly all of the world’s palm is grown.
“The past three years of La Niña have caused significant damage to the oil palm root system, which may take time to recover, even if rooting fertilization continues,” Teck said. As a result, fresh fruit clusters can be smaller and contain less oil, he added.
Tek said the prospect of limited supply could keep the price of palm oil at around RM4,000 ($885) a tonne in the near term. Prices have been trading above this level since early February. Other major developments include China’s recovery from the end of Covid Zero, the ongoing Russian-Ukrainian war, and Indonesia’s policy of restricting exports and building up its biodiesel mandate, he said.
MPOA is a producer group that represents about 40 percent of palm oil plantations by area in Malaysia.
Image credits: Samsul Said/Bloomberg