In October and November 2021, tropical oils (CNO and PKO) prices approached historic highs. Reduced production in Indonesia drove the most recent price increases.
More surprising than the soaring prices of tropical oils has been the price differential between Coconut Oil (CNO) and Palm Kernel Oil (PKO). CNO has regularly been at parity or premium pricing to PKO. The price decline in CNO we saw in October has continued, bringing the CNO/PKO differential to ~$300/ton. If in addition an oleochemical producer has to consider the raising RSPO Mass-Balanced premiums for PKO, this further widens this oil price differential.
Indonesia, the world’s largest PKO producer, uses an export tax and levy program, which creates a multi-tier/higher pricing structure for exported PKO, as opposed to domestic prices. Without that program, we would see a different situation in the CNO/PKO price relationship.
The first quarter of the calendar year has historically proven to yield the lowest seasonal production. Up until Typhoon Rai, CNO supply has been quite good, while PKO stocks are low, driving some oleochemical plants to switch a portion of their oil feed from PKO to CNO. The storm damage is likely to reduce the high expectations for CNO production in 2022.
We are currently seeing an upward trend in global fats and oils supply due to better soy production in the U.S., positive-looking prospects in South America for soy and growing global sunflower oil supplies. Soybean oil is reaching near parity pricing to palm oil in India and China, which is welcome as the rationing starts to prepare for the lower palm oil production season.
While markets normally balances supply and demand, non-market/political influences can add to the challenge. Though we expect prices and price relationships to revert to normal, we make no guesses about the timing in which it will happen.
P&G Chemicals remains committed to ensuring its long history of securing sustainable and competitive feedstocks, converting them into valuable products that enable our customers to win in their markets.