Will crude palm oil prices continue to rise next year?

By ZAIDI ISHAM ISMAIL
[email protected]

KUALA LUMPUR Dec 10 – The year 2021 has been a great blessing for all commodities including palm oil.

COVID-19 has been a bane for some sectors such as the tourism and aviation industry.

But for the e-commerce, technology, food delivery and plantations sector, the pandemic has been a boon for the e-commerce and plantations sector.

For the past year, crude palm oil (CPO) prices doubled to an all-time high of RM5,000 last month before dipping a bit to RM4,900 this month.

But for next year, where do prices go from here?

Will it hover at current levels or climb even higher or sink like a rock?

It's hard to predict and nobody can predict but let us take a look at the extenuating factors which can either push up or squeeze down CPO prices.

A protracted COVID-19 will support prices

Palm oil is a food item and viruses and lockdowns will shackle supply.

Hence if demand grows while the pandemic still lurks, it will provide a steady support for CPO prices.

Foreign workers shortage will steady palm oil demand

A shortage in foreign workers and escalating demand saw CPO prices shoot to an all-time high of more than RM5,000 per tonne last month.

Analysts expect the foreign workers shortage situation to continue until the pandemic is reared in.

Worker’s shortage will beef up CPO demand and Malaysian Palm Oil Board data shows that there is a shortage of mainly 32,000 foreign workers.

The foreign workers are affected by the border restrictions, of which some who have gone back to their hometowns in neighbouring countries are not allowed to return to Malaysia.

"The whole supply chain spanning from harvesting to transporting and milling are affected. Thus, this will augur well for CPO prices," a Maybank Research analyst told DagangNews com

Pent up demand to drive up prices

For the past two years, demand for CPO was stifled due to the pandemic.

But with the reopening of economies in Malaysia and the rest of the world, demand for CPO is expected to pick up especially in China, India and the European Union.

This will support CPO prices in 2022 but it could be threatened by another wave of the virus or its variant such as the Omicron.

Production shortage will push up prices

Indonesia and Malaysia are the world's top two oil palm producers accounting 80 percent of global supply.

Industry observers expect both countries to have a shortage of CPO production this year.

Data by the Malaysian Palm Oil Board indicate that Malaysian CPO production is expected to fall to below 18 million tonnes compared to last year's 19 million tonnes.

If the shortage is severe, CPO prices will no doubt climb higher.

EU restriction could dampen CPO prices

The European Union has always been jealous of CPO due to its efficiency.

CPO has been proven to be more efficient in the biodiesel programme to run diesel engines.

Thus, to protect its local farmers who grow rapeseed and sunflower oil, the EU has banned CPO imports.

This ruling could swamp the market and dampen CPO prices from strengthening.

As a conclusion, it is hard to predict where CPO prices is headed next year.

All signs point to a consolidation but the sector must be wary as well that prices could spiral out of control. Anything is possible. – DagangNews.com