Tropical Oil Prices Rise Following Decline in Palm Production

At the March 2024 POC (Palm Outlook Conference) in Kuala Lumpur, Malaysia, industry experts shared compelling presentations about the supply and demand dynamics of the tropical oils industry. I had the pleasure of traveling to the Philippines for a few days prior to the event – and the experience and knowledge gained while meeting with several coconut smallholder farmers was beyond compare. I thank them all for their unwavering dedication to this important industry that we rely upon to develop the essential products our consumers depend on.

Post conference, we have seen a continuance of the slowdown in palm oil (PO) production that began after a seasonal peak between October and December 2023. This slowdown is expected to last through June 2024. Palm yields are being affected by inadequate replanting and aging oil palm trees; about one third are more than 25 years old. Lower production and decreased inventory have led to recent palm price increases.

On the contrary, soybean oil is anticipated to reach record production in South America, possibly capping palm oil price increases. Higher North American biofuel production is expected to start now (this spring) and drive higher demand for used cooking oil (UCO), tallow and soft oils (soy, canola) – a scenario that has the potential to support price increases of various feedstocks, including palm oil.

Palm kernel oil (PKO) is linked to palm oil production as approximately 10% of PKO is contained in the palm fruit (although palm kernels can be stored longer and processed later). If the decline in palm oil production continues, PKO stocks will likely continue decreasing through mid-2024. PKO’s price has recently increased, reaching near parity with that of coconut oil (CNO).

Domestic demand in the Philippines for CNO is expected to increase by approximately 70 kilotons per year starting in July 2024 and driven by an increase in the local biodiesel mandate from 2% to 3%. On the positive front for supply, coconut trees previously damaged by typhoons in some regions of the Philippines are recovering and bearing new fruit that should be harvested in the coming months. Also, there is now general consensus that the El Niño effect is moderate in most tropical oil producing regions with no significant production loss expected at this point from this weather phenomenon.

Lastly, the European Union Deforestation-free Regulation (EUDR) requires that certain forest commodity materials are deforestation free, legally produced and accompanied by a due diligence statement. The EUDR was widely discussed during the 2024 POC, as work is underway toward the goal of ensuring that the relevant portion of palm and its derivatives meet EUDR requirements by the end of this calendar year.

Our P&G Chemicals team will continue to monitor the potential impact of EUDR on the global supply of oils. We will work with our customers and suppliers to comply with this new regulation.