KUALA LUMPUR (Aug 16): The current high price of crude palm oil (CPO) may not be sustainable in the medium term mainly because global production of vegetable oils is expected to rise sharply in the upcoming months, according to ISTA Mielke GmbH (Oil World) executive director Thomas Mielke.

Speaking in a webinar organised by UOB Kay Hian Securities in collaboration with Bursa Malaysia Derivatives, Mielke highlighted that world export supplies of sunflower oil will rise steeply by almost 3.0 million tonnes in the 2021/22 season. 

“The latest Oil World projections also point to a further increase in soya oil production and rising palm oil production next season (on the assumptions that Covid-19 can be brought under control and that the restrictions on foreign labour will be eased),” he said. 

In fact, Mielke expects the prices of palm oil and other vegetable oils to ease within the next four months on the assumption of normal weather conditions in the major producing regions in North and South America, Russia, Ukraine, India and Southeast Asia. 

With these assumptions, Mielke said he anticipates Indonesian CPO prices to decline to around US$1,000 until December 2021 from US$1,200 currently. 

In recent weeks, free-on-board (fob) export prices of Malaysian RBD palm olein were trading at discounts of US$30-40 vis-a-vis Indonesian crude palm oil, but this discount is likely to diminish in the months ahead, he pointed out. 

Mielke projected global palm oil production to increase by 3.9 million tonnes in the Oct/Sept 2021/22 season compared with an increase of 2.1 million tonnes in Oct/Sept 2020/21.

“Due to reduced Malaysian export supplies in the second half of 2021, the global dependence on Indonesia palm oil will be increasing. Indonesian exports have picked up lately,” he said. 

For the second half of 2021, Oil World estimates palm oil exports for Malaysia at 8.8 million tonnes (against 9.6 million in the same six months of 2020) and for Indonesia at 16.4 million tonnes (against 14.9 million).  

Mielke added that investment in mechanisation and large-scale replanting are needed to reverse the downtrend in average yields in Malaysia in the coming years. He also noted that labour shortage remains a major constraint in palm oil production.

(This article has been amended.)