The estimated decline of palm oil exports from Indonesia - Southeast Asia’s largest economy - in February would imply that the ‘losing streak’ is to continue. In January 2015, Indonesian palm oil exports fell by about 8 percent (m/m) due to the same factors: weak demand from nearly all its main CPO export markets and the world’s large stockpiles of edible oils. Previously it had been reported that January palm oil shipments from Malaysia, the world’s second-largest CPO producer, declined to the lowest level since 2007. Palm oil shipments from Malaysia then declined 18 percent (m/m) to 971,640 tons in February with exports to China plunging 70 percent according to data from the Malaysian Palm Oil Board. However, despite this weak performance, Malaysian authorities raised the country’s palm oil export tax from zero to 4.5 percent for April, effectively ending a duty-free policy that had been in place since September 2014 amid weak global CPO prices (authorities calculated a benchmark crude palm oil price of 2,288 ringgit, or roughly USD $620 per ton, for April).

China, which struggles to combat slowing economic growth, imported the lowest amount of edible oils in February since 12 years ago. Meanwhile, palm oil imports to India slowed to the lowest level since a year ago due to higher cooking oil inventories.

Meanwhile, global stockpiles of edible oils have grown on favourable weather conditions. Reserves of crude palm oil in Indonesia - the world’s largest producer of this commodity - expanded to the highest level since August 2014. According to a survey, palm oil production in Indonesia increased 12 percent (m/m) to 2.2 million tons in February while stockpiles climbed 8.7 percent to 2.5 million tons. Meanwhile, global soybean production has increased as well and puts downward pressure on the CPO price. After the record US soybean harvest, worldwide soybean reserves will increase 35 percent in 2015 according to a US government estimate. Soybean oil and palm oil dominate the international market, accounting for about 60 percent of the world’s total production of edible oils. As both commodities can substitute one another, food processors tend to switch between both commodities as prices fluctuate hence the lower soybean oil price reduces demand for palm oil. As a result palm oil futures have slid around 20 percent over the last 12 months.

Moreover, amid low crude oil prices demand for (palm oil-based) biofuel had decreased, further weakening demand for palm oil.

Indonesian Palm Oil Production and Export:


    2008   2009   2010   2011   2012   2013   2014   2015¹
(million metric tons)
  19.2   19.4   21.8   23.5   26.5    27.0    31.5    32.5
(million metric tons)
  15.1   17.1   17.1   17.6   18.2    21.2    21.8    22.3
(in USD billion)
  15.6   10.0   16.4   20.2   21.6    19.0      

¹ indicates forecast
Sources: Food and Agriculture Organization of the United Nations, Indonesian Palm Oil Producers Association (Gapki) and Indonesian Ministry of Agriculture