What factors will drive lower crude palm oil prices in H2 2022?

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Factors Influencing Lower Crude Palm Oil Prices in H2 2022

Crude palm oil (CPO) prices are projected to average RM5,300 per tonne in the second half of 2022, a decrease from the first half. This anticipated decline is primarily attributed to expectations of increased global vegetable oil supply, higher CPO production, particularly in the third quarter, and a reduction in palm oil exports. Furthermore, Indonesia's adjustments to its export regulations, aimed at stimulating shipments and reducing its substantial palm oil inventories, are expected to intensify competition for Malaysia's palm oil sector.
Increased Global Vegetable Oil Supply and Production

The global vegetable oil market is anticipated to see a rise in supply, which will exert downward pressure on CPO prices. This broader market dynamic, coupled with an expected increase in CPO production within Malaysia, especially during the third quarter of 2022, contributes to the forecast of lower prices. For the entirety of 2022, Malaysia's CPO production is projected to reach 18.50 million tonnes, representing a marginal increase of 2.1 per cent. This increase is anticipated due to expanding mature planted areas and favourable weather conditions, although labour shortages are expected to keep production below the potential of nearly 20 million tonnes.
Reduced Palm Oil Exports and Indonesian Competition

A decrease in palm oil exports is also a key factor contributing to the lower price outlook for the latter half of 2022. Concurrently, Indonesia's strategic decision to ease its export rules and reduce its high palm oil inventories is poised to create significant competition for Malaysian palm oil. This move by Indonesia, the world's largest producer, follows its earlier export restrictions, including a three-week ban implemented from April 28, which had previously driven up prices.
Impact of Past Market Disruptions and Their Resolution

The first half of 2022 saw CPO prices influenced by several extraordinary events. The conflict between Russia and Ukraine disrupted the global sunflower oil supply chain, increasing demand for palm oil as an alternative. Additionally, Indonesia's initial ban on palm oil exports on April 28 further pressured prices upwards, leading to a contraction in demand in certain markets. However, the rapid decline in palm oil prices commenced after Indonesia lifted its export ban on May 23, signalling a shift in market dynamics.
Persistent Labour Shortages Affecting Production

Despite the overall outlook for increased production, persistent labour shortages continue to be a significant challenge for Malaysia's palm oil industry. Disruptions in labour supply since 2021 have led to a notable decrease in CPO production compared to what could be achieved under normal circumstances. Statistics indicate a 6.2 per cent decrease in total plantation sector employment in May 2022 compared to the previous year, with field workers and harvesters experiencing the most substantial declines. This ongoing issue could impact the sector's overall competitiveness.

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What factors will drive lower crude palm oil prices in H2 2022?

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