Report on the Global Demand of Palm Oil in July

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Tuesday, August 12, 2008

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Report on the Global Demand of Palm Oil in July

GLOBE - For the rest of the year, global demand for palm oil is expected to remain strong. However, sustainability issues, health concerns and the rainy season may threaten future palm oil prices, demands and production, says Rabobank’s Soft Commodities Monthly.

Palm oil is a substitute for soybean, rapeseed and sunflower oil in both industrial and food uses. “Historically, palm oil is dependent on its price differential and has traded at a discount to the other oils,” said Rabobank Analyst Luke Chandler.

Biodiesel production shrinks

Most recently, the high cost of edible oil has driven down the profitability of biodiesel production, with most plants across the EU continent running at under 30 percent. “Sustainability issues and health concerns over saturated oil consumption also threaten future demand of palm oil,” said Chandler.

Issues in Malaysia

In Malaysia, issues over sustainable farming practices and land conflicts with indigenous tribes have also hampered expansion. Chandler says, “Production will slow down as suitable land becomes scarce.” The Malaysian government has invested a significant amount of money in research and development aimed at solving yield problems.

Another major uncertainty exists in the severity of the year-end monsoon season, which coincides with the second half of the main harvest period. Excessive rainfall and flooding on plantations in 2006 and 2007 prevented farmers from fully harvesting crops in Malaysia.

Issues in Indonesia

Future growth in Indonesia has also been hindered by sustainability issues. The Indonesian regions of Sumatra and Kalimantan account for 97% of Indonesia’s total palm oil plantation area. High palm oil prices have driven Sumatran companies to expand aggressively, leading to rapid destruction of peat swamps and virgin rainforests,” said the Rabo analyst.

Better awareness about environmental concerns have pushed companies involved with palm oil to adopt new purchasing policies. “Some companies are now limiting their buying power to only sustainable palm oil plantations putting pressure on the Indonesian government to be more prudent with their land allocation,” said Chandler.

Global prices

“Floods in the U.S., dry weather coupled with soaring costs in Brazil, and farmers striking in Argentina have disrupted global edible oil supplies,” said Chandler. However, palm oil is export-dominated and has benefited from China and India recently reducing tariffs and banning exports. “Demand for palm oil is expected to remain strong for the rest of the year until production of the other edible oils picks up,” concludes the report.

Rabobank’s Soft Commodities Monthly report analyses current market situations and makes projections for four commodities each month. Rabobank Analyst Luke Chandler compiled the 22-page report covering wheat, cotton, sugar and this month’s headliner, palm oil .

TheBioenergySite News Desk