Palm Chemical Industry Analysis
Simple Palm Chemical Industry Analysis
The Palm Chemical Industry continues to be shaped and driven by the popularity of palm oil as a low-priced vegetable oil for cooking purposes. Other uses include feedstock for biofuels, cosmetic ingredients and fragrances.
Grand View Research study (July 2015) projected the palm oil market to reach USD $88 million by 2022. It is notable, however, that the estimate is still subjected to market changes. Some factors that have or will influence the market are listed below but are no means exhaustive.
- Global economic slowdown and rising stockpiles
Questions about the estimate by Grand View Research are raised as early as August 2015 with news media such as Bloomberg reporting the worsening demand and price of palm oil. Reasons cited are anemic global economic growth and the falling prices of crude oil. Shifts in local market trends are another factor. China, a main palm products importer, has its demand affected by the development of local crushing capacity that has a preference of soyabean to palm oil. Global palm production, however, remains strong in the midst of slowing demand resulting in increasing stockpiles and falling prices. Malaysia inventories, for example, have risen by 28% and stands at a record high at 2.91M tons. Indonesia, another major palm producers, also has its inventories rising at 25% annually.
- Adverse weather conditions
Palm oil production is affected over the El Nino period in 2015. Indonesia, in particularly, was badly affected by drought conditions and lower rainfall. Although the production subsequently recovered after the passing of El Nino, the event shows the vulnerability of palm oil production to adverse weather conditions.
- Environmental concern
Another factor is the increasing environmental concerns over the deforestation practices to clear land for oil palm plantations. Several countries like the Netherlands have pledged to use only RSPO certified palm oil. The same sentiments on environmental sustainability are also shared by the supply side with major palm producers in Indonesia signing the Indonesia Palm Oil Pledge (IPOP). However, environmental compliance will increase cost of palm production and result in market uncertainty.
- Price of related commodities
Over the last decade, evidence showed that prices trend for palm and crude oil were correlated. This correlation still remains in the new decade. The fall in crude oil prices from 2014 to 2015 resulted in a corresponding decrease in prices of the palm oil market. Palm oil is a feedstock for biofuels. Hence, it is not surprising that its economic viability as biofuels is affected with falling crude oil prices.
Price correlation between palm and crude oil (USD/ton)
Following palm oil, soyabean oil is the next in terms of popularity as vegetable oil. Price trends in the last decade show the correlation between the two vegetable oils.
Price correlation between vegetable oils (USD/ton)
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