The Bursa Malaysia Derivatives exchange (BMD) palm oil price hit a record high on January 21st, up by 20.8% month-on-month (m-o-m) and 58% year-on-year (y-o-y), at MYR 5,187/MT (EUR 1,092/MT), continuing a 5-week upward trend, amid tight stocks. In addition, productivity levels have been affected by a continued labour shortage in Malaysia, due to border closures following restrictions to control COVID-19 outbreaks. A recent rally in soyabean oil (palm oil’s closest alternative oil for food and fuel) has also supported prices.
Further increase in Malaysian palm oil price was driven by Indonesia’s (top palm oil producer and exporter) recent implementation of a rule to limit crude palm oil exports for the next 6-months, to control a surge in its domestic cooking oil prices, and ensure domestic demand is fulfilled. Under this rule, Indonesian exporters are required to show their sales contracts and declare how much crude palm oil they have sold to acquire export permits.
However, the Malaysian Palm Oil Board (MPOB), expects an overall increase in productivity in the Malaysian palm oil industry in the 2022 calendar year (CY), with an expected recovery in production and stock levels, and plans to issue permits to foreign workers. Malaysian palm oil exports are also forecast to increase to 17 million tonnes, up by 9.3% y-o-y, as major importers, such as India and China, are expected to shift to acquiring a larger proportion of their palm oil imports from Malaysia, due to the recent export rule in Indonesia.
Given the current situation, Malaysian palm oil prices are likely to remain elevated in Q1 2022 and could potentially decline in H2 2022 if the current labour crisis is resolved, and weather conditions become favourable.