Global palm oil trade unlikely to rebound till 2022-23: USDA

The global trade in palm oil is not expected to rebound until the end of the current season (July 2022-June 23) as some buyers are waiting to see how low the price will drop before re-entering the market, says the US Department of Agriculture (USDA).

It said high prices throughout much of the last season drove a contraction in the vegetable oil trade, with palm oil affected the most in terms of volume, it said in its July report “Oilseeds: World Market and Trade”.

The biggest reduction in imports has been from China, where vegetable imports overall have declined by half. It said the demand for palm oil has diminished, with exports forecast at the lowest since 2015-16 as importers rely on domestic supplies and draw down their stocks.

“Even with the recent drop in prices, the global trade in palm oil is not expected to rebound until 2022-23 since some buyers are waiting to see how low the price will drop before re-entering the market,” it said.

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Indonesia factor

Mentioning that Indonesia’s palm oil policies have had a profound impact on the global market this year, influencing availability and prices, the report said the recent sharp decline in palm oil prices faced by importer countries reflects the repeal of the export ban and implementation of an export acceleration programme. With reduced domestic market obligations and lower combined export taxes and levies, the country is making more palm oil available to the global market, sending prices to the lowest level in a year.

Highlighting the scenario in the vegetable oil market over the past year, it said the vegetable oil market has been tight for several reasons. They include a poor rapeseed crop in Canada, more domestic use of soyabean oil in the United States, and the war in Ukraine nearly halting all sunflower seed oil from the top exporter.

“With less of these vegetable oils available, some importers shifted toward palm oil, which drove prices higher. Palm oil prices had already been rising based on labour shortages in Malaysia and strong biofuel use in both Malaysia and Indonesia. Indonesia’s ban on palm oil exports in April exacerbated these issues, as it accounts for more than half of global exports,” it said.

The announcement sent importers scrambling for supplies and the domestic market searching for sufficient storage, causing domestic palm oil prices to plummet.

In response, the Indonesian government replaced the export ban with a domestic market obligation in May, allowing for exports as long as exporters supplied the domestic market first. In June, the government developed an export acceleration programme to reduce inventories and spur trade once again. However, the increase of the palm oil mandatory biodiesel blend from 30 per cent to 35 per cent in July may reduce the amount available for export, the report said.

Record high palm oil prices, restrictive Indonesia trade policies, and the conflict in Ukraine have driven major vegetable oil importers, including India, to switch from palm and sunflower seed oil to soyabean oil, it said.

Oilseed production

The report forecast the global oilseed production at 643.07 million tonnes (mt) for the season against the estimated 600.33 mt for last season.

While USDA’s forecast showed a decline in the production of sunflower seed from 57.38 mt in 2021-22 to 50.38 mt this season, it estimated an increase in the production of soyabean seeds to 391.40 mt from 352.74 mt.

Veg oil production

USDA report forecast an increase in the production of major vegetable oils such as palm oil, rapeseed oil, soyabean oil and sunflower oil during 2022-23.

It forecast the global vegetable oil at 218.21 mt this season against the estimated 210.98 mt for 2021-22. Of this, the production of palm oil is forecast to be increased to 79.14 mt against 76.26 mt.

Production of other vegetable oils such as soyabean oil, rapeseed oil, and sunflower seed oil is forecast to be increased to 61.48 mt (59.13 mt), 30.72 mt (28.85 mt), and 19.61 mt (19.51 mt), respectively.

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