POINTERS: Global Oils and Fats Outlook 2016

By: Tan Sri Datuk Dr. Yusof Basiron

TAN SRI DATUK DR. YUSOF BIN BASIRON aged 66, a Malaysian. He is presently holding several important positions which include: i. Chief Executive Officer of Malaysian Palm Oil Council (MPOC) ii. Director of Sime Darby Berhad iii. Chairman and Director of CBIP Berhad Apart from holding distinguished corporate positions, he is also involved in other organizations which are: (i) Senior Fellow and Past President of Academy Sciences Malaysia (ASM) (ii) Fellow member of Malaysia Scientific Association (MSA) (iii) Fellow member of Malaysian Oil Scientists' and Technologists' Association (MOSTA) (iv) Fellow member of the Incorporated Society of Planters His notable academic achievements are as follows: i. In 1972, he obtained his Bachelor in Chemical Engineering Degree from the University of Canterbury, New Zealand; ii. In 1974, he obtained his Post-Graduate Degree in Rubber Technology (ANCRT) in the United Kingdom; and iii. In 1976, he obtained his Masters Degree in Engineering specializing in Industrial Management (M.E.) and also in Business Administration (MBA) from the Catholic University of Leuven in Belgium. Before he joined Palm Oil Research Institute of Malaysia (PORIM) in 1979, he held the position of Rubber Technologist/Techno-Economist with the Rubber Research Institute (RRI)/Malaysian Rubber Research Development Board (MRRDB). In 1986, he completed his doctorate with a PhD in Applied Economics and Management Science from the University of Stirling, Scotland. He was later appointed as the Director-General of PORIM in 1992. He held the position for 8 years until April 2000 before assuming the role of the Director-General of Malaysia Palm Oil Board (MPOB), an organization which existed as a result of a PORIM and Palm Oil Registration and Licensing Authority (PORLA) merger, from 1 May 2000 until 18 January 2006.

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It was a tumultuous year for the global oils and fats scenario in 2015 as prices fluctuated wildly in the second and third quarters of the year. The increase in total production was not as high as originally anticipated mainly due to unfavourable weather conditions in many oilseed producing countries. However, production still exceeded 200 million MT despite the production problems in some countries.

In 2016, we anticipate that there will be growth but the rate of growth is likely to be less than that of last year. In this year the oils and fats production globally will again be led by palm oil which is poised to exceed 63 million MT and will play a crucial role in the global supply of oils and fats.
As the two top palm oil producing countries contributing to 85% of the global palm oil production, Malaysia and Indonesia will be the focus of the international oils and fats trade. With 30% of the global oils and fats production coming from Malaysia and Indonesia, the role played by both countries is vital in forecasting palm oil price.

During the last six months of 2015, palm oil prices have fluctuated between a low of RM1,890/MT before ending on a high of RM2,550/MT in December. The steep fall in crude mineral oil price during this period impacted the price of not only palm oil but also other edible oils such as soybean and sunflower oils. These are among some of the issues that will be highlighted in this paper.

This paper will analyse issues that will affect palm oil price in 2016 such as demand and supply analysis and we will also take into account the influence of the current drop in crude oil price on palm oil price especially in the first half of this year. Demand for palm oil from major consuming countries such as India, China, EU and USA is nevertheless, expected to remain upbeat and we will take these factors into account. The regional analysis on the demand and supply scenarios will be aggregated at the global level to forecast the price, demand and supply balance in 2016.

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Questions & Answers (2) :

Norhaznita Husin

7 years ago

Dear Tan Sri Yusof Malaysian palm oil industry is a valuable industry and contributing to country\'s economic growth. The consumption of palm oil in Malaysian biodiesel is helping the industry to reduce the palm oil stock and increase CPO prices. Do you think the implementation of B10 programme this year would help to increase the CPO price, and then help the government to achieve the revised 2016 GDP target of 4% to 4.5%?

Yusof Basiron:
Implementing B7 in Malaysia is already helping to reduce palm oil stocks significantly during a year of El Nino affected production. If B10 is implemented, the availability of palm oil for export may be affected much more. Prices of palm oil are expected to recover even without B10 implementation, as current implementation of B15 in Indonesia will be more efficiently carried out because of the availability of a palm estate fund (US$50/mt tax on CPO export) to subsidise their biodiesel mandate. Malaysian GDP target growth of 4 to 4.5% for 2016 will be benefitting from any improvement in the prices of palm oil during 2016, and such improvement has already been shown in the paper presentation.
7 years ago

Norhaznita Husin:
Thank you so much for your reply Tan Sri Yusof and the useful presentation.
7 years ago

Mohamad Raid Majzoub

7 years ago

Dear Tan Sri Datuk Dr. Yusof Basiron Thank you for useful presentation as usual. I agree that SUR, Supply and Demand are main elements for CPO prices. However do you see any correlation between USD/RM Ex-rate and demand on Malaysian CPO? especially from overseas importers. Thank you.

Yusof Basiron:
Ringgit appreciation may lower palm oil prices if viewed in isolation, but ringgit appreciates because petroleum price goes up, and this will push palm oil price higher too because of biodiesel factor. Thus some opposing effects may occur on palm oil prices as explained. Demand by importers is strong and Malaysian palm oil is needed to prevent shortages, in view of limited growth in oils and fats supply for 2016.
7 years ago