POINTERS: Prospects for Malaysian Palm Oil

Research paper presented with focus on Saudi Arabian Palm Oil market in specific and edible oil industry in general. This paper objective is to present industry segments where palm oil is key raw material or ingredient, key current and future trends that might shape the demand and palm oil trade.

Veg Oils are one of the major raw material in the direct food consumer demand and Industrial Food applications. Palm oil has 65% market share in the Saudi Arabia veg oil industry. Being volume leader in veg oil complex, any changes in the food and consumer use trends will impact the trade. Research paper try to discuss the facts and figures of those major trends.

Palm Oil being versatile application range, bulk volume availability and relatively cost competitive resulted in wide adoption by food industry applications. This paper objective is present key industry trends and future prospects of palm oil in consumer and food industry in macroeconomic, consumer market perspective.

Following are key points covered in this research paper:

 Edible oil market over view – Saudi Arabia perspective
 Oil types, annual volumes, market share, growth rate –CAGR
 Palm oil volume growth in Saudi Arabia food industry – Historical perspective and key drivers
 Population growth rate Vs Consumption growth rate
 Future Projections on food Industry demand

 Edible oil industry drivers
 Macro: Economic -GDP growth, Population Growth, Income Growth
• Oils & Fats per capita consumption trends, underlying drivers in regional markets
•18 KG per Capita (Developing world) | 24 KG per Capita (Developed) | 27 KG per Capita (Urban centric markets)

 Micro Economic
• Changes in Food consumption trends: Health, Convenience, Packaged, labeling
• Changes in Food service industry: Bakery | Confectionary| Fast Foods-Frying| Restaurant small scale | Catering –Large scale
• Changes in Consumer taste profile: Dairy fats vs Palm Oil fats

 Palm Oil Imports to Saudi Arabia | Trade Matrix with Importing countries and trade partners

 Future potential for Edible oils industry and Food Industry perspective
 Industry segments: Oils and Fats as Raw material and Ingredient
 Trends and changes future: Consumer segments

 Potential Opportunities for Palm Oil
• Value addition
• Ingredient replacement
• Cost advantages and product innovation
• Health labeling requirements: Trans-fat free foods
• Saturated fats replacement with PUFA/MUFA based fats in food ingredients

 Projected Palm Oil Volumes and Export opportunities – Long term

 Consumer segment
• Retail trends

 Industrial demand
• Catering – Small and medium scale
• Food industry – Bulk frying
• Ingredients- Specialty & custom products

Summary of Presentation:

Consumer demand expected to change per capita veg oil consumption from current 22kg/annum (Base 2019) to 26kg/annum (projection: 2029), the increase in demand will be captured by palm oil due to its production volumes, proximity to palm oil producing region and versatile application range from consumer to industrial uses. Population growth and consumer trends will evolve from fragmented user market to urban centric industrial scale food choices, that will result into increased use of palm oil volume, which is expected to outpace the trend line population based consumption growth.

Over all palm oil demand expected to grow 2.5% in volume CAGR in long term which is higher than population growth rate 1.8% mainly due to industrial scale food application demand. Palm Oil expected to retain market share of 60-65% in veg oil complex while total oils basket volume expected to grow. Industrial demand, Value added consumer products are the potential market segments to focus in long term for palm oil industry players in the regions as next wave of demand growth expected to come from those segments.

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Questions & Answers (6) :

Nur Izati binti Abu Hassan

3 years ago

Dear Mr. Pradeep Reddy 1. The total volume of Palm Oil import jump significantly in year 2017. What is the advantage for KSA to import the Palm Oil from Malaysia compare to others country especially Indonesia? 2.From the slide "Share of Veg oils by Volumes", what is the main reason for the limited volume growth of Palm Oil from Year 2015 to 2019? 3. What is the forecast for Palm Oil volume growth in KSA for year 2020?

Pradeep Reddy:
1. There is no preferential customs or taxes that differentiates between origin of palm oil. So technically it is supplier’s choice to load the oil either from Malaysia or Indonesia based on their logistic advantage and Export tax system. I would probably think the reason for 2017 is export tax difference between IPO and MPO at origin. At destination (in KSA) no difference between MPO to IPO. 2. 2015 to 2018, Petroleum Oil price drop and slow GDP growth other macro-economic factors limited the volume growth in overall economy there by Palm oil. 3. Forecast growth of volumes for 2020 is 3-4% Increase. We are looking at 0.8 million tons of total oil. Palm would be 65% of that total market. It is interesting to see what “COVID-19” virus will effect. There will be downward revision to this numbers certainly.
3 years ago

MEGAT SYAZWAN SHAH

3 years ago

Malaysia is working towards producing 100% sustainable palm oil. Do KSA care about sustainable palm oil and would this become a factor for KSA to import more palm oil from Malaysia?

Pradeep Reddy:
Sustainable Palm oil under RSPO, Mass Balance (MB) , segregated products supply chain programs are adopted by multinationals . Currently customers requirements of Sustainable Palm Oil is 5% of total volume , as sustainable products (MB certified ) products cost slightly higher (2%-4%) compared to general MPO . It is growing segement , when it grows to significant size of volumes, i think MPO has clear advantage serving this segement compared to IPO.
3 years ago

Melody Loke

3 years ago

Any specific reason why sunflower oil in KSA is getting more popular compared to palm? What happen to corn oil. It has been substituted by sunflower oil.

Pradeep Reddy:
Reason is price competitiveness of Sunflower Oil. Corn Oil was maintaining a destination premium of $300 /MT higher vs Sunflower Oil. - Sunflower and Corn Oil both are projected as healthier options (high MUFA, PUFA ) with sunflower oil beining 30% Cheaper , it is getting popular with consumer. There has been shift in consumer preference. - Increase in Sunflower oil volumes is also due to fact of supply origin, Black sea trade is well connected as well as can supply higher volumes Vs competing oil in the same segment. - Palm Oil is not projected in the same segment as sunflower oil in retail consumer market. So Palm may not overlap sunflower consumer segment share relatively compared to Sun oil to corn oil.
3 years ago

Shaheen

3 years ago

Your paper shows that from 2014 to 2017, Indonesia’s palm oil share declined from 51% in 2014 to 17% in 2017 while Malaysia’s market share rose from 24% in 2014 to 80% in 2017. Can you explain why Indonesia’s palm oil share collapsed. The other thing is that in KSA bulk oil sector, is it control by a few big players. If there is who are the big boys in KSA bulk palm oil market. Who are your country’s major packed products players e.g. bottled cooking oil, shortenings, margarine etc. Where is the major origin of imports for these packed products? Does Malaysia have a competitive edge over Indonesia in KSA packed product sector?

Pradeep Reddy:
Bulk Oil sector is consolidated market. Industry players who have facilities of port storage, logistics and volume organizing capabilities are effectively in control. This bulk operations are involves long term investments, accordingly we can see 2-3 large players in this market due to efficiency of scale. - Opportunities are in bottled oil segment and speciality fats improts as they are small in volume, usually container imports. Effective for small investments and focused specific market operations. - Savola Group, IFFCO, Arab-malasia veg oil, Mazola, Omani veg oil LLC, and many white lable retail branded products are in Consumer segment. - Speciality fats industry players : Bunge Loders Croklaan, Wilmar, Savola, IFFCO, AAK, PPP.. are major industry players . Question related to Origin preference : Why Indonesia share decline or malaysia share increase is mostly supplier, trader logistics planning. No specific factor, i would say, this is mostly related to traders organizing logistics based on malaysia, Indoneisa tax strcuture, vessel arragement, shipments etc.
3 years ago

Nur Sophia

3 years ago

Since KSA per capita oils and fats consumption is stable around 23 – 24 kg and varies only with population, it appears that KSA edible oil downstream sector e.g. margarine sector, oleochemical sector, shortenings sector are not growing. My question is that whether there are good opportunities to export finished products to KSA. Is these sectors in your oils and fats market growing?

Pradeep Reddy:
They are Growing faster , but market volume is small. ||||| Speciality Fat market is Niche, small volume but high value products. This is certainly is a current and future opportunity for speciality fats product players. As Industry is developing (Bakers, Chacoletiers, Confectionary etc).. focus of these players are on quality and reliable supply. Margarine , shortening , filling fats, CBS, CBR , Butter additives etc are in focus. Market is growing in the high value fats segment.
3 years ago

Ceanry Ayub

3 years ago

With the dynamic of Saudi Arabia latest "open policy" to foreign tourists from 49 countries as it tries to grow that sector and diversify its economy away from oil exports with, attracting thus creating an influx of tourists -- the authorities are aiming for 100 million annual visits by 2030, what will be the estimated figure of KSA demand/consumption of palm oil, particularly from Malaysia? Do you think KA will further increase its palm oil import as a result of "trump-initiative" policy towards the Palestinian people?

Pradeep Reddy:
Tourism growth is going to be significant Non-Oil GDP factor. To project the demand from tourism sector, we generally look at comparable tourism market i.e. UAE. UAE demand is (15 M tourist- 9 M Population) palm oil demand is 350 KMT. for KSA if we project that with estimated (100 M touris- 35 M population) that will equate to palm oil demand of 1.1 Million tons. This is potential area to watch for palm oil insutry players and MPO suppliers. This industry segment will create mutiple business opportunites. I think we all agree, this is potential demand catalyst, we may get better picture going forward., at present it is projection.
3 years ago