POINTERS: Supply and Demand Prospects for Oils and Fats Industry in Malaysia

By: Mr. Ahmad Borhan Ahamad Nordin

Mr. Ahmad Borhan bin Ahamad Nordin holds B. Sc. (Statistics) from Universiti Kebangsaan Malaysia. He has carried out research works on various aspects of palm oil such as feasibility study on producing organic palm oil, marketing and price dynamics of PKE and its future competitiveness, relationship of futures price and physical price of palm oil, simulation study on the availability of palm oil stock and its development, a review on palm oil supply and disappearance, effects of exchange rate on exports of oil palm products to selected markets and impact of labelling on palm oil in the US market. He wrote a number of papers and published them in journals. He also participated in lectures and local seminars. He is currently a Senior Research Officer, Techno Economy Research Unit, Economics and Industry Development at Malaysian Palm Oil Board (MPOB).

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This paper outlines the oils and fats situation in Malaysia and highlights the development of the Malaysian palm oil industry in the first half of 2012. Malaysia is the second largest palm oil producer in the world. In 2011, Malaysia had exported nearly 18 million tonnes of palm oil products, 3.4 million tonnes of palm kernel products, 2.2 million tonnes of oleochemical products, 0.4 million tonnes of finished products and nearly 0.3 million tonnes of other palm-based products. However, the imports of oils and fats, including palm oil had nearly doubled from 1.1 million tonnes in 2005 to 2.1 million tonnes in 2011. Imports of palm oil had grown from 26% in 2005 to 61% in 2011, while imports of palm kernel oil had tripled over the same period. Imports of soybean oil, rapeseed oil and sunflower oil had increased, albeit at slower rates, and their combined total increased to 0.26 million tonnes in 2011 from 0.16 million tonnes in 2005. Only the import of coconut oil had declined from 0.24 million tonnes in 2005 to 0.16 million tonnes in 2011. These developments indicate that palm oil still plays a major role in the oils and fats industry in Malaysia, but other oils and fats nevertheless still garner a significant position in the local market due to growing consumer demand that arising from higher disposable income and taste preference. It also discusses the supply and demand situation of Malaysian palm oil in the first half of 2012 as compared to that of the previous year.

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Questions & Answers (6) :

Ahmad Borhan A Nordin

12 years ago

The Table 7 reflected is supposed to be that of refinery operation capacity but unfortunately the crushing capacity was highlighted but please be informed that 56 palm oil refineries were in operation with a total annual refining capacity of 24.97 million tonnes in 2011, while two refineries with a total capacity of 0.56 million tonnes were not in operation. An additional of 24 refineries with a combined capacity of 8.98 million tonnes were still at various stages of planning and construction. This brings the total number of refineries approved as at the end of 2011 to 82, with a total annual capacity of 34.50 million tonnes. The 6.85 million tonne per year operational capacity as mentioned is that of 44 kernel crushers in operation in 2011.

Ahmad Borhan A Nordin

12 years ago

Dear Bhavna Shah. Thank you for the question. The CPO export duty free quota allocation is generally used as a price stabilisation mechanism under the purview of Malaysian Plantation Industries and Commodities (MPIC). The palm oil stock is anticipated to decline together with the likely scenario of lower production of CPO of 18.4 MnT in 2012. In view of poor economic fundamentals, particularly bearish effect of Eurozone financial debt crisis, and the slowing down of manufacturing sector in China have shown negative impact on palm oil prices. Therefore, a situation of low stock of palm oil could possibly either push the palm oil price to increase or prevent the price to drop faster.

Ahmad Borhan A Nordin

12 years ago

Dear En Kamal Azmi. Thank you for the question. The lower production during the first half of 2012 was partly contributed by the declining average FFB yield that was down by 11% to 1.29 tonnes/hectare (t/ha) as against 1.45 t/ha achieved in the same period of last year. Among others, this was also partly due to replanting of old palm trees programme thus reducing FFB production and at the same time quality FFB fruits supplied to the mills was monitored continuously by Licensing and Enforcement Division of MPOB (placement of MPOB officers at the mills).

Bhavna Shah

12 years ago

Dear Mr. Borhan, in view of the recent increased CPO export quota, what will be the impact on year end stocks in Malaysia and palm oil prices ? Thank you.

Kamal Azmi

12 years ago

En. Borhan. You mentioned that lower production of MPO ( Table 11) during 1st. half of 2102 was due to lower lower average FFB production despite much higher OER reported during the same period. Can help to enlighten what are fundamental reasons of the contributor factor. Is it due to age of palm trees, cyclic factors, lack of application of fertilizer, harvesting round or perhaps labour problem, Thank you

Mohammad Jaaffar Ahmad

12 years ago

Dear En. Borhan et al, I wish your Table 7 on Status of Palm Oil Refineries in Malaysia 2011 is correct that the total refining capacity is 6.85 million tonnes per year. I would then agree with the decision of the Government to increase the CPO duty-free quota to 5 million tonnes for 2012, in fact we should double the amount since our CPO production is forecasted at 18.5 million tonnes. The fact is our total refining capacity is 24.97 million tonnes in 2012 which gives us an utilization rate of 74%. If we export out 5 million tonnes, this will give us an utilization rate of 54% only. Do you think a refiner can be sustainable at almost half of its refining capacity for long? Secondly, from where our refiners are going to import CPO to fill the deficit? Finally, will the Indonesian are so kind to export duty-free CPO for our needs? Thank you.