KUALA LUMPUR: Malaysian palm oil industry leaders warned on Tuesday of depressed prices this year as the coronavirus pandemic cuts global demand and boosts inventories, with the biggest producer warning of painful cost cuts.
“A full recovery may only happen in 4Q of 2021… Things may get worse before it gets better,” Sime Darby Oils managing director Mohd Haris Mohd Arshad said during a webinar with the Malaysian Palm Oil Council (MPOC).
“The industry may see another round of painful cost cutting. The key to survival is keeping operating costs down, manage our sells well and not run out of cash,” he said.
Coronavirus-driven lockdowns in many countries, which has shut restaurants and curbed travel, sent benchmark crude palm oil to near 10-month lows at RM2,014 per tonne on Tuesday.
The contract started the year on a high at RM3,130 per tonne.
State agency MPOC estimated that the overall global demand for the world’s most widely used vegetable oil has plunged 25% amid the pandemic.
“Due to the loss of food consumption and reduced biodiesel demand, palm oil prices may remain depressed,” Mohd Haris said, adding that the industry will see growth in the consumption of palm oil for food fall for the first time.
The crash in crude oil prices has also made palm biodiesel less competitive, Malaysian Biodiesel Association (MBA) president UR Unnithan said.
He said biodiesel mandates in top producing countries Indonesia and Malaysia are needed to slow the build-up of stocks amid a slump in exports.
April inventories in Malaysia surged 18% to 2.05 million tonnes from March, the highest since December 2019, the Malaysian Palm Oil Board said.
The world’s second largest producer last month delayed the nationwide adoption of its B20 mandate – biodiesel with 20% palm oil mix – due to its virus curbs.
Indonesia has also signalled plans to delay its B40 mandate and continue with an already ambitious 30% content.
“We are not going to see a stockpile figure of less than 2 million tonnes unless sales pick up, but we do not see anything improving before 2021,” Malaysian Palm Oil Association (MPOA) CEO Nageeb Wahab said.
“I am worried that we will go back to 2018 year-end stock levels of more than 3 million tonnes,” Nageeb said.
The Malaysian Biodiesel Association forecast 2020 crude palm oil prices to trade at RM1,800-RM2,300 per tonne. – May 13, 2020, Reuters
