Global Palm Oil Trade Unlikely to Recover Till 2022-23, says USDA

According to the US Department of Agriculture (USDA), the global trade in palm oil will not recover until the end of the current season (July 2022-June 23), because some buyers are waiting to see how low the price will fall before re-entering the market. It said in its July report "Oilseeds: World Market and Trade" that high prices throughout much of the previous season drove a contraction in the vegetable oil trade, with palm oil being the most affected in terms of volume.

China has seen the greatest reduction in imports, with total vegetable imports falling by half. According to the report, demand for palm oil has decreased, with exports expected to be the lowest since 2015-16 as importers rely on domestic supplies and draw down their stocks.

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

The report noted that Indonesia's palm oil policies have had a significant impact on the global market this year, influencing availability and prices, and that the recent sharp drop in palm oil prices faced by importer countries reflects the repeal of the export ban and the implementation of an export acceleration programme. The country is making more palm oil available to the global market by reducing domestic market obligations and lowering combined export taxes and levies, causing prices to fall to their lowest level in a year.

It stated that the vegetable oil market has been tight for several reasons, highlighting the situation over the last year. They include a poor rapeseed crop in Canada, increased domestic use of soyabean oil in the US, and the war in Ukraine, which has nearly halted all sunflower seed oil exports from the top exporter.

"With fewer of these vegetable oils available, some importers shifted to palm oil, driving up prices." Palm oil prices had already been rising due to labour shortages in Malaysia and high biofuel consumption in both Malaysia and Indonesia. "The ban on palm oil exports imposed by Indonesia 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 scrambling for adequate storage, resulting in a drop in domestic palm oil prices.

In May, the Indonesian government responded by replacing the export ban with a domestic market obligation, allowing exports as long as exporters first supplied the domestic market. In June, the government launched an export acceleration programme to reduce inventories and re-energize trade. However, the report stated that the increase in the mandatory biodiesel blend of palm oil from 30% to 35% in July may reduce the amount available for export.

According to the report, record high palm oil prices, restrictive Indonesia trade policies, and the Ukraine conflict have prompted major vegetable oil importers, including India, to switch from palm and sunflower seed oil to soyabean oil. According to the report, global oilseed production will be 643.07 million tonnes (mt) this season, up from 600.33 mt last season.

While the USDA forecast predicted a decrease in sunflower seed production from 57.38 mt in 2021-22 to 50.38 mt this season, it predicted an increase in soyabean seed production to 391.40 mt from 352.74 mt. According to the USDA report, the production of major vegetable oils such as palm oil, rapeseed oil, soyabean oil, and sunflower oil will increase between 2022 and 2023.

It forecasts global vegetable oil at 218.21 million tonnes this season, up from 210.98 million tonnes in 2021-22. Palm oil production is expected to increase to 79.14 million tonnes from 76.26 million tonnes. Other vegetable oils, such as soyabean oil, rapeseed oil, and sunflower seed oil, are expected to increase in production to 61.48 mt (59.13 mt), 30.72 mt (28.85 mt), and 19.61 mt (19.51 mt), respectively.