Palm Oil: Bird’s Eye View of Malaysian Palm Oil Markets

Crude palm oil prices had climbed to an eight-year high last week amid concerns of labor shortage in Malaysia to lower output at a time when dry weather has started threatening soybean crops in South America. Moreover, it has been a stronger edible oil in the market. Steady export demand was another major factor attributing to the price rise. There exist concerns about supplies on reports of palm oil output in Malaysia in October dropping below the average of 1.89 million tons in the past 10 year. This year the Malaysian Palm Oil output will be lower than previous estimates because of labor issues. 

According to present MPOB data, around 80-85% of the plantation workforce comprises more than 265,000 mainly from Indonesia, Philippines and Bangladesh, and the industry was already short of around 31,000 workers before the pandemic. The ongoing pandemic has already enhanced the risk of production loss of Malaysian palm oil. The economy of this nation is heavily dependent on palm oil trade, as it is the most important agricultural commodity in terms of earning export revenue. In Malaysia, workers in palm plantation are mostly migrant workers from Indonesia, Bangladesh and India rather than the locals. Earlier in March-April, as countries in Southeast Asia struggled to get the Covid-19 outbreak under control, the Malaysian government tightened restrictions on both sided travel for workers. As a result the country continues facing the acute labor shortage. Manual labor is required to keep trees pruned and healthy for future seasons. Therefore lack of adequate manpower to manage all these operations shall be influential in enhancing the production loss threat in near future as well.  

With respect to the inventory situation of Malaysia's crude palm oil (CPO), the stocks have increased slightly by 0.4% to 934,710 tonnes in September from 930,990 tonnes in August month, as per the latest Malaysian Palm Oil Board (MPOB) report. The report indicated processed palm oil stocks rising by 2.24% month-on-month (m-o-m) to 790,410 tonnes during September, from 773,070 in August.