Frost & Sullivan says it is optimistic on growth in Indonesia’s crude palm oil market due to the consumption in the emerging markets such as China and India in spite of the recent downturn in prices that will be short lived.
Chris de Lavigne, global VP, Consulting, said that the average consumption of vegetable oils at 19 kg/ capita in China and 14 kg/ capita in India remains well below that of the West that stands at about 65 kg/ capita, thus China and India offering further upside in the food segment which accounts for the bulk of palm demand.
He said that crude palm oil (CPO) has grown in the last two decades witnessing a compound annual growth rate (CAGR) of 7.5% over that period to become the largest vegetable oil consumed in volume terms, now representing around one third of the vegetable oil market.
The company expects palm oil to sustain such a rate of growth over the next decade to being a 100 million ton market in 2022.
The company says growth will mainly be driven by Indonesia that has more landbank available than Malaysia and overtook Malaysia several years ago as the main palm oil producer.
De Lavigne said that weather is one of the key factors in the supply equation of oilseeds and palm oil.
It is also an important catalyst to price movement.
Eight to 16 weeks of dry condition can cause moisture stress in palms.
It can reduce production up to 30% of normal situation, depending on severity, he added.
In wet condition, he said that eight to 16 weeks of heavy rainfall can cause immediate disruption of harvesting and logistics.
It can reduce production up to 15% of potential yield in severe La Nina events, he added.
“Conversely, we have seen what the recent glut of soy oil and vegetable oils can do to a market, coupled with a slight slowdown in growth due to slowing economies,” said de Lavigne.
He said that palm kernel oil is predominantly consumed for oleochemical applications, as well as food.
Oleochemical production capacity is increasing tremendously in Indonesia spurred on by the recent CPO tax structure promoting downstream investments.
He said that the key oleochemical companies are Wilmar, Emery, IOI, KLK, Musim Mas, Ecogreen, Socimas to name but a few, and new players have been making an entry such as Evyap in Malaysia.
The company expects palm oil to sustain such a rate of growth over the next decade to a 100 million ton market in 2022.
