About two decades ago, palm oil emerged as the cheapest source of edible oil and has been garnering a lot of attention since then. Currently, it is the largest produced, consumed and traded edible oil in the global markets. Not only is it competitively priced compared with other major oilseeds, but it also has the highest yield.
The oil palm tree yields an annual average of 3.7 tonne of oil per hectare, which is much higher compared with the rapeseed (0.6 tonne) and soybean (0.45 tonne). The oil palm fruit produces two types of oil—palm oil, which is obtained from the fleshy mesocarp, and palm kernel oil from the kernel, usually in a ratio of 10:1.
The global markets have undergone a momentous shift in the production and consumption pattern of edible oil. During 1990-91, soy oil was the highest produced and consumed, with a share of around 33% in production and 28% in consumption. However, because of a shift in production trend towards high-yielding palm oil and a change in the demand pattern towards a cheaper substitute, palm oil now occupies the number one position, accounting for a share of over 33% in global production and consumption.
Indonesia and Malaysia are the largest producers and exporters of palm oil, and together have an over 87% share in the global output and 90% share in exports. Global palm oil production has grown at a compounded annual growth rate of 7% over the past two decades and was 50.6 million tonne in 2011-12. Global consumption has grown at 7% a year during the same period and was 49.4 million tonne last year.
India is the largest consumer of palm oil with a 16% share, followed by Indonesia and China, with 13% share each. In the total global imports, India has a share of 19%. However, India's share in the global production of palm oil is minuscule at around 0.2%. Under the 12th Five Year Plan, the Agriculture Ministry plans to raise palm oil production by 0.3 million tonne in five years.
India consumes 17-18 million tonne of edible oil annually, of which palm oil and soy oil account for over 45% and 16% share, respectively. Nearly 50-55% of the consumption demand in the country is met by imports. In 2010-11, crude and refined palm oil accounted for over 74% share, followed by soy oil with a 12% share in the total edible oil imports. This may surpass 10 million tonne in 2012-13.
On the price front, Bursa Malaysia Derivatives (BMD) Exchange is one of the largest crude palm oil futures market and the Indian prices take cue from this benchmark price. The high yield period for Malaysian palm oil is from June-October. So, crude palm oil prices start declining from June onwards and continue to face downside pressure till October, when they usually bottom out. They start rising gradually thereafter. This year, the high yield of palm oil in Malaysia and comparatively lower exports from the nation have led to a sharp rise in the inventory level. This has led the BMD palm oil futures to decline by almost 30% from its high of Malaysian Ringgit (MYR) 3,015 per tonne, which it touched in May 2012. Taking cues from the international markets, MCX CPO futures has also declined by over 38% since May.
Though seasonally higher yield period is nearing its end, we don't expect an immediate rebound in palm oil prices amid escalating Malaysian palm oil stocks. The export duty cut by Malaysia will come into effect only in January and, thus, Indonesia will continue to offer cheaper exports, building additional Malaysian stockpiles. The prices may decline in the next one month and seasonal rebound may take place from December onwards as the alternate energy demand will emerge at lower levels and reduce pressure on the inventories.
(The writer is Associate Director, Commodities & Currencies, Angel Broking)
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