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Palm oil price forecast: Will Indonesia flood global market after lifting export ban?

By Nicole Willing

Edited by Valerie Medleva

13:46, 27 July 2022

Palm oil price forecast: Will Indonesia flood global market after lifting export ban? A real view of palm plantations in East Asia.
A real view of palm plantations in East Asia. Photo: nelzajamal /

Palm oil prices soared to fresh highs in the first quarter as production was expected to fall in Malaysia, the second largest producer, and traders were concerned about disruptions to supply of substitutes like sunflower seed oil because of the Russia-Ukraine war, adding further bullish impetus. The market spiked again in April as Indonesia, the world’s largest producer, announced a temporary ban on exports in response to rising domestic food prices.

But the market has since plummeted by 54.5% from the high, as Indonesia reversed its ban on 23 May with inventories piling up, and rising output combined with lower exports have lifted Malaysian stocks.

Will palm oil prices continue to fall with Indonesia ramping up exports? 

In this article, we look at the recent market volatility and the latest palm oil price predictions.

Why is palm oil a traded commodity?

The use of palm trees as a source of food originates in West Africa as much as 5,000 years ago, according to historians. Oil palm trees grow in tropical climates where there is an abundance of sunshine and rain. The trees produce two commodities. Palm oil is an edible vegetable oil that is processed from the pulp of the fruit from the trees, and palm kernel oil is produced by crushing the seeds.

Indonesia accounts for around 56% of global palm oil production, with neighbouring Malaysia supplying around 31%. Other producing countries include Nigeria, Thailand and Colombia. 

Global palm oil production 2022

Palm oil has several other applications aside from vegetable oils. It can be used in lubricants, candle-making, food packaging, toiletries and cosmetics, and as a biofuel. Palm oil prices fluctuate based on supply, demand, weather conditions and forecasts, costs of other edible oils, environmental concerns and biofuel demand. Biofuel made from palm oil is cheaper to produce than soybean or ethanol, making it a cost-effective substitute. 

Spot prices for crude palm oil (CPO) are highly influenced by palm oil inventories, as well as prices for crude petroleum oil and soybean oil. Large price swings can make palm oil a profitable asset to trade for commodity investors.

The world’s biggest palm oil producers and traders include Wilmar International, IOI Group, Musim Mas, Sime Darby (SMEBF) and Felda Global Ventures, while the biggest buyers include Nestle (NESN), Unilever (ULVR), Ferrero, Mondelez (MDLZ) and Arla.

Palm oil is a controversial commodity. The palm oil market has seen long-term supply tighten as environmental sustainability concerns have resulted in underinvestment in the industry. Palm oil plantations are a major cause of deforestation, which has had a devastating impact on wildlife populations – some species are nearing extinction. But global palm oil demand is rising at a faster pace than production capacity, because of growing consumption in the food and biofuels industries.

Palm oil price trend reflects tightening supply/demand balance

The long-term price trend on the palm oil market reflects volatility in prices for food and crude oil, and more recently reflects the impact of major world events on the supply chain.

The benchmark Malaysian spot palm oil price was around 2,300 Malaysian ringgit per tonne in 2007, climbing towards MYR4,000 per tonne in early 2008 at the height of the commodity price boom. The market then collapsed to less than MYR1,500 per tonne at the end of the year as the global financial crisis took hold.

Malaysian palm oil price chart

The economic recovery saw the CPO price rebound to a record high above MYR3,700 per tonne in 2011. But the price declined over the following years and briefly dipped below MYR2,000 per tonne in August 2015, dropping to a six-year low and falling by 60% from the February 2011 peak. 

Lower oil and biofuel prices weighed on the market at the same time as bumper crops of soybeans in the US and sunflower oil in Ukraine and Russia pulled prices down further. That coincided with a supply increase as palm oil plantations that were planted in southeast Asia and West Africa in response to the record highs prices seen in 2011 started production, while demand growth from major consumers like China, India and the EU began to slow down in 2015.

But the El Nino weather pattern in 2015 and into 2016 brought hot, dry weather that reduced overall yields in southeast Asia, leading to lower stocks, while demand rose as the global economy grew. The palm oil price recovered to reach MYR3,200 per tonne in January 2017. But the market then fell back again, sliding below MYR1,900 per tonne in November 2018 for the first time in nine years as yields increased in Indonesia and India introduced an import duty to protect its domestic production,

The market rebounded again in 2019, reaching MYR2,900 per tonne at the end of the year. Palm oil prices climbed above soybean oil prices for the first time since 2011 as dry weather stalled the rise in production and the soybean market was affected by the US-China trade war. CPO prices plummeted again in January 2020, dropping by 10% in a single session in January – the market’s biggest fall in 11 years – in response to concerns about the impact of the Covid-19 pandemic on demand.

But the market began to rebound in April 2020 and by the end of the year approached the previous record high of MYR4,000 per tonne. Prices were lifted in the second half of the year by low production and inventories in Malaysia, a strong outlook for the soybean oil market because of dry weather, and an increase in Indonesia’s palm oil export tariffs.

Palm oil prices hit fresh record highs in 2021, ending the year at MYR5,150 per tonne, on rising demand post-Covid-19 lockdowns, labour shortages and soaring fertiliser prices. Palm oil producers cut their usage of fertilisers in 2018 and 2019, affecting yields. They further reduced their usage as supply constraints limited fertiliser availability and costs rose.


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Palm oil prices retreat from 2022 highs

The palm oil market hit another new high in 2022, with the benchmark CPO price soaring to MYR8,163 per tonne on 1 March. The US market price reached a record of over $1,900 per tonne. The surge in prices was driven by a combination of uncertainty over the supply of sunflower seed oil from producers in Ukraine and Russia, a drought in Latin American reducing soybean output and Indonesia’s steps to limit palm oil exports as domestic food prices spiked.

The Malaysian CPO price retreated to MYR6,116 per tonne on 18 March, but moved back towards MYR7,000 per tonne in April and spiked to MYR7,757 per tonne on 27 April after the Indonesian government announced a ban on palm oil exports on 22 April effective from 28 April. Lower petroleum prices also made palm oil less attractive as a biofuel.

Indonesia was not expected to keep the ban in place over the summer, as palm oil is one of its major export products and it has limited storage capacity. The domestic market consumes only a third of its production.

Indonesia lifted the ban on 23 May, with excess inventories building up, sending the CPO price plunging from the MYR7,000 per tonne level to MYR4,688 per tonne by 22 June. The price bounced above MYR5,000 per tonne at the end of June, but dropped to MYR3,643 on 14 July, its lowest level since June 2021. 

“Spot CPO price in Malaysia has fallen 30% to RM4,698/tonne since Indonesia removed its export ban on 23 May. The bulk, or 91%, of the price declines occurred since 10 Jun, after Indonesia provided more clarity on the export process as it replaced the export ban with the Domestic Market Obligation (DMO),” said Ivy Ng Lee Fang, analyst at financial service provider CGS-CIMB, in a client note on 5 July. 

“The DMO requires firms to supply a portion of their products to the domestic market via the government's bulk cooking oil programme, and links DMO volumes to their export permits and quotas/rights.”

Indonesia’s palm oil exports soared by 862.66% from May to June, and rose by 89.29% from June 2021 to June 2022, to an equivalent $2,46bn, according to data from the country’s central statistics agency. CGS-CIMB estimates that Indonesia’s palm oil stocks rose as high as 8-8.5 million tonnes at the end of June, up from 6.1 million tonnes at the end of April and 3.6 million tonnes at the end of December. 

“As such, we estimate Indonesia will need to speed up exports over the next few months to 3m-3.5m tonnes/month to clear stocks ahead of the peak production season. The government has signalled that it will be facilitating this process to help raise domestic CPO prices. It has recently changed the DMO ratio to 7x of their domestic sales, from a previous 5x ratio to help accelerate exports.”

The jump in exports from Indonesia weighed on the Malaysian market, where palm oil inventories hit a seven-month high in June on lower exports and higher production. Malaysia’s palm oil stocks increased to 1.66 million tonnes in June, up by 9% from May and 3% from June 2021, according to data from the Malaysian Palm Oil Board (MPOB). Output increased by 6% month on month and 4% year on year to 1.55 million tonnes, while exports dropped to 1.19 million tonnes – down by 13% from May and 16% from June 2021. Malaysian domestic consumption rose to 0.28 million tonnes, up by 5% from May and 8% from June last year.

The monthly average CPO selling price fell to MYR6,106 per tonne, down by 11% from May and 59% from June 2021 after hitting an historic high of MYR6,873 per tonne in May, MPOB data showed. 

“The preliminary MY export estimates for shipments in the first 10 days of July 2022 by Amspec and Intertek (independent cargo surveyors) were sharply lower MoM at 308,290t/330,310t (-15.2%/-20.5% MoM) respectively. If this export trend persists into the rest of the month, we could possibly see MPOB’s July stockpile breaching 1.8mt level,” wrote Ong Chee Ting, analyst at Malaysian banking group Maybank, in a client note on 13 July.

What does the reversal of the Indonesian export ban and subsequent price collapse mean for the palm oil market for the second half of 2022? We look at analysts’ palm oil price predictions.

Palm oil price forecast: Will the market fall further or find support?

“We are of the view that to clear the excess stockpile, Indonesia’s palm producers will need to entice buyers by lowering CPO prices – causing local and international CPO prices to fall significantly in recent weeks. We think CPO prices could stay weak during the adjustment period and trade at larger discounts over competing edible oils until Indonesia’s palm oil stocks fall to the 4m-5m tonnes level. Meanwhile, we expect Malaysia’s palm oil stocks to rise due to competition from Indonesia palm oil,” wrote CGS-CIMB analyst Fang in a palm oil price forecast note. 

“This, coupled with concerns over slower global economic growth, could keep CPO prices in the RM4,000-5,000 per tonne range in the near term.”

Maybank’s Ong also expects the market to remain under downward pressure, noting: “With bloated inventories in Indonesia, Malaysia’s palm oil will likely lose market share to Indonesia in the coming months resulting in gradual pick up in MPOB’s stockpile. Barring any unexpected weather anomaly (especially in Northern Hemisphere this July-Aug), we anticipate CPO price to remain under pressure in 3Q before recovering somewhat in 4Q.

“With relatively normal-to-good weather, oilseeds yield in the Northern Hemisphere may turn out strong in 2H22 (after 2 years of unfavourable weather and crop yield) and this will add pressure to CPO price as it will coincide with CPO’s seasonal peak output in 2H. Conversely, any unfavourable condition in the Northern Hemisphere will help sustain oilseed prices and limit CPO price downside.”

At the time of writing (26 July), the palm oil price forecast from Trading Economics saw the price falling further over the next year, trading down to MYR3,558.80 per tonne by the end of this quarter and MYR3,156.55 per tonne in 12 months’ time, based on global macro models and analysts’ expectations.

The latest palm oil price forecast for 2022 from Fitch Ratings showed the US crude oil futures price, which fell below $1,000 per tonne early this month, could continue to weaken in the second half of the year after averaging $1,500 per tonne in the first half. 

Said Fitch: 

“Fitch expects prices to decline further to below USD1,000/t in 2H22, with higher global vegetable oil output. A reinstatement of export curbs by Indonesia and lower supply from Ukraine are key upside risks for CPO prices.... Global palm oil output is forecast to jump by 8% over 2022-2023, after a flat 2021, according to the US Department of Agriculture. We expect the bulk of the growth to come from Indonesia, with Malaysian output in 2022 likely to be affected by persistent labour shortages.”

But the long-term palm oil price forecast from algorithm-based prediction service Wallet Investor showed the US futures price rebounding. The website predicted that palm oil could trade by the end of the year at $1,113.70 per tonne and $1,532.43 by the end of 2023. Wallet Investor’s palm oil price forecast for 2025 estimated that the price could rise to $2,367.22 by the end of the year.

The World Bank, which issues commodity price forecasts twice a year in April and October, predicted in April that the palm oil price could average $1,650 per tonne in 2022, $1,400 in 2023 and $1,372 in 2024. Unlike in October when it forecast a price of $1,079 per tonne by the end of the decade, the World Bank did not issue a palm oil price forecast for 2030 in its April update.

When looking at any palm oil price forecast, it’s important to keep in mind that commodity markets are highly volatile, making it difficult for analysts and forecasters to come up with accurate predictions. Before making any investment, we recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money that you cannot afford to lose.


What is the palm oil price?

The benchmark price for palm oil has plunged from a record high above MYR8,000 per tonne in March 2022 to around MYR3,700 per tonne in July as Indonesia has reversed a temporary export ban and ramped up overseas shipments to reduce excess stocks.

Keep in mind that past performance is no guarantee of future returns.

Will the palm oil price go up?

The direction of the palm oil price will likely depend on production and government export policies in Indonesia and Malaysia, which account for around 87% of global supply. Prices will also depend on demand from major consumer markets and prices for other edible oils that can be used as substitutes, among other factors.

What is palm oil used for?

Palm oil is an edible vegetable oil that is primarily used in cooking products, but also in lubricants, candle-making, food packaging, toiletries, cosmetics and biofuels.

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