Global palm oil consumption is forecast to reach a record 37.3 million metric tonne (MMT) in 2006/07. The larger food consumption forecast is driven primarily by increased palm oil demand in China and India, the world’s largest edible oil importers. The strong growth in palm oil consumption over the last six years has resulted in palm oil being the dominant oil in the global market.
As soybean oil prices began to rise in 2001-02, the spread between palm oil and soybean oil began to widen, increasing the competitiveness of palm oil in the world market. Since 2001-02, palm oil consumption has increased 13.2 million metric tonne, compared to an 8.7 MMT increase in soybean oil consumption.
This lower price, compared to other major oils, primarily soybean oil, has given palm oil a competitive advantage in both these large oil consuming countries. According to US department of agriculture, the trend of strong growth in palm oil consumption continues in 2006-07, as food use and industrial use are forecast to increase 4.5% (1.2 MMT) and 8.9% (710,000 MT), respectively.
The larger food consumption forecast is driven primarily by increased palm oil demand in China and India. Growth in industrial use comes as Malaysia, China and the EU-25 expand their palm oil biofuels programs. Growing demand for rapeseed, soyoil and soymeal in the European Union (EU) is also changing the dynamics of the oilseed complex pricing around the world. The demand emanating from biofuel generation needs may skew supply situation in favour of EU as the prices will be driven higher.
Based on current crop estimates of Food and Agriculture Organisation (FAO), global oil/fat production is anticipated to grow by about 3% during 2005-06. Most of the anticipated increase in world oil production will be accounted for by sunflower seed oil and, more importantly, palm oil, although the latter is forecast to increase at a below average rate of 5%, due to yield reductions anticipated for Malaysia.
Interestingly, the slowdown in palm oil production has led other countries to shift resources towards the production of high oil-yielding seeds and to invest in the expansion of crushing capacities.
Global supplies of oils and fats (ie 2004-05 ending stocks plus 2005-06 production) are forecast to increase by about 4% compared to last season. International trade in oils/fats (including the oil contained in seeds traded) is anticipated to continue increasing during 2005-06. The anticipated 4% expansion is expected to be led by palm oil followed by sunflower seed and rapeseed oil. Soybean oil shipments are estimated to remain unchanged, thus accounting for a lower share of total trade than usual.
Source: Soyatech.com June 16, 2006.