Report Highlights:

This report includes updates for the palm oil PS&D table, including final figures for the 2014/15 Oct/Sept. marketing year (MY). MY 2014/15 output was dampened by floods affecting East Coast Malaysia in December 2014. Exports had been stagnant, and ending stocks surpassed 2 million tons. For 2015/16, production is not expected to increase, and exports will face stiff competition from large supplies of other vegetable oils. Restrictions placed on imports will dampen imports by nearly half of 2014/15 quantities.

Executive Summary

Crude palm oil (CPO) production dropped slightly to 19.9 million tons in 2014/15, due to floods affecting East Coast Peninsular in December 2014. The area continues to grow in East Malaysia as plantations mature, but productivity remains stagnant. Increases in minimum wages, tree stress from induced over production of fruit, erratic labor supplies, disease problems, varying production practices, and introduction of replanting program incentives for plantation companies will hinder production growth in 2015/16 and beyond.

CPO exports, meanwhile, were stagnant due to reduced imports from key traditional markets, especially China and Pakistan. New emerging markets from Argentina and Brazil in Latin America and Burkina Faso, Congo and Djibouti in Africa show strong import demand. Imports from Indonesia are at an all-time high as local millers prefer to store or export their CPO rather than sell to local refiners and be subjected to the local Good Services Tax (6%).

With high opening stocks, stagnant production and exports, ending stocks have increased to an all-time high of 2.6 million tons. This put pressure on CPO prices, and, as such, no export taxes were imposed on CPO for the year 2015.

Malaysia: PS&D for year 2013/14 to 2015/16

Palm Oil

2013/2014

2014/2015

2015/2016 (f)

Market Year Begin: Oct 2013

Market Year Begin: Oct 2014

Market Year Begin: Oct 2015

USDA Official

New Post

USDA Official

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USDA Official

New Post

Area Planted

0

0

0

0

0

0

Area Harvested

4,526

4,526

4,689

4,689

4,800

4,800

Beginning Stocks

1,784

1,784

2,091

2,090

2,381

2,628

Production

20,161

20,161

19,800

19,878

21,000

19,900

MY Imports

358

319

950

1,016

500

550

Total Supply

22,303

22,264

22,841

22,984

23,881

23,078

MY Exports

17,344

17,344

17,400

17,354

18,100

18,000

Industrial Cons.

2,170

2,150

2,350

2,300

2,650

2,650

Food Use

648

640

660

662

670

650

Feed Use

50

40

50

40

50

40

Total Dom. Cons.

2,868

2,830

3,060

3,002

3,370

3,340

Ending Stocks

2,091

2,090

2,381

2,628

2,411

1,738

Total Distribution

22,303

22,264

22,841

22,984

23,881

23,078

CPO Marketing Year Production (October/September) by State

2010/11

Change

2011/12

Change

2012/13

Change

2013/14

Change

2014/15

Johor

2,919,605

-5.11

2,770,456

8.95

3,018,449

4.31

3,148,456

-0.6

3,128,296

Kedah

295,427

8.82

321,491

-7.66

296,866

-6.92

276,331

7.9

298,209

Kelantan

232,926

7.91

251,342

15.86

291,206

0.64

293,058

-6.8

273,115

Negeri Sembilan

611,314

8.22

661,548

1.44

671,082

-3.57

647,097

7.2

693,639

Pahang

2,695,698

0.79

2,716,968

9.23

2,967,684

1.49

3,011,773

-2.8

2,925,465

Perak

1,916,769

-0.36

1,909,862

-1.95

1,872,566

7.40

2,011,191

-1.2

1,986,211

Selangor

602,092

4.89

631,512

-11.69

557,686

-2.40

544,290

-6.7

507,711

Terengganu

505,631

-4.65

482,142

3.86

500,763

-0.73

497,111

-5.7

468,625

Other States

229,233

-5.97

215,548

-7.12

200,199

4.95

210,103

-6.0

197,434

P. Malaysia

10,008,695

-0.48

9,960,869

4.17

10,376,501

2.53

10,639,410

-1.5

10,478,705

Sabah

5,642,823

-5.54

5,330,161

10.39

5,884,024

3.46

6,087,466

-4.5

5,812,856

Sarawak

2,557,624

9.86

2,809,922

9.03

3,063,619

12.08

3,433,820

4.5

3,587,650

E. Malaysia

8,200,447

-0.74

8,140,083

9.92

8,947,643

6.41

9,521,286

-1.2

9,400,506

Malaysia

18,209,142

-0.59

18,100,952

6.76

19,324,144

4.33

20,160,696

-1.4

19,879,211

Area and Yield

Based on production and mature hectars in calculating yield, (Yield as a function of production to area harvested) for 2013/14 yield was 4.45, in 2014/15, it dropped to 4.23. For 2015/16, it was estimated to drop further to 4.14. The decline in overall productivity was compensated by an increase in mature area. Mature area has increased about 1.4 percent from 2013 to 2014. Meanwhile, planted area increased from 5.23 million hectares in 2013 to 5.39 million hectares in 2014, an increase of 3.0 percent. An erratic labor supply, disease, and varying management practices continue to hamper productivity increases.

Malaysia Yield for year 2013/14 to 2015/16

2013/14

2014/15

2015/16

Area Harvested (in '000 hectares)

4,526

4,689

4,800

Production (in '000 tons)

20,161

19,878

19,900

Yield

4.45

4.23

4.14

Palm Oil Yield (Tons/Hectares) Marketing Year (Oct/Sept) by States

States

2008/09

2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

Johor

3.75

3.75

3.77

3.65

3.89

4.01

4.08

Kedah

4.47

4.47

3.90

4.15

4.01

3.70

3.77

Kelantan

2.61

2.61

2.36

2.40

2.80

2.61

2.31

Negeri Sembilan

3.94

3.94

3.81

3.79

4.00

3.86

3.88

Pahang

3.82

3.82

3.75

3.69

4.07

3.98

3.7

Perak

4.51

4.51

4.26

4.15

3.99

4.13

4.11

Selangor

4.08

4.08

3.98

4.10

3.80

4.01

3.97

Terengganu

2.80

2.80

3.02

3.09

3.13

3.00

2.82

P. Malaysia

3.86

3.86

3.65

3.69

3.77

3.68

3.75

Sabah

4.41

4.41

4.49

4.14

4.51

4.61

4.4

Sarawak

3.24

3.24

3.35

3.33

3.32

3.87

3.25

E. Malaysia

3.83

3.83

3.92

3.74

3.92

4.24

3.87

Malaysia

3.85

3.85

3.70

3.69

3.79

3.96

3.8

*Palm oil yield based on MPOB published data.

Oil Palm Area By State, as of December 2014 (HA)

State

Mature

%

Immature

%

Total

Johore

651,242

88.8

82,225

11.2

733,467

Kedah

80,767

93.7

5,415

6.3

86,182

Kelantan

99,783

68.9

44,979

31.1

144,762

Melaka

49,501

93.7

3,348

6.3

52,849

N. Sembilan

142,503

84.1

26,865

15.9

169,368

Pahang

623,269

86.6

96,344

13.4

719,613

Perak

348,794

89.6

40,370

10.4

389,164

Perlis

189

64.1

106

35.9

295

Penang

13,309

93.7

895

6.3

14,204

Selangor

126,805

91.6

11,677

8.4

138,482

Terengganu

139,410

82.5

29,538

17.5

168,948

Sabah

1,355,541

89.7

155,969

10.3

1,511,510

Sarawak

1,058,208

83.8

205,183

16.2

1,263,391

Malaysia

4,589,321

87.0

702,914

13.0

5,392,235

*Palm oil planted area based on MPOB published data.

Oil Palm Area By State, as of December 2013 (HA)

State

Mature

%

Immature

%

Total

Johore

639,946

87.58

90,748

12.42

730,694

Kedah

77,843

91.38

7,339

8.62

85,182

Kelantan

94,320

67.35

45,715

32.65

140,035

Melaka

49,635

94.18

3,069

5.82

52,704

N. Sembilan

142,452

83.77

27,596

16.23

170,048

Pahang

609,962

85.89

100,233

14.11

710,048

Perak

344,271

89.52

40,323

10.48

384,594

Perlis

190

68.35

88

31.65

278

Penang

13,163

97.65

317

2.35

13,480

Selangor

125,122

91.33

11,881

8.67

137,003

Terengganu

137,289

80.99

32,231

19.01

169,520

Sabah

1,330,039

90.17

145,069

9.83

1,475,108

Sarawak

961,857

82.85

199,041

17.15

1,160,898

Malaysia

4,526,089

86.55

703,650

13.45

5,229,739

*Palm oil planted area based on MPOB published data.

Consumption

Driven by need to lower ending stocks, consumption increased from 2.83 million tons to 3.00 million tons, with almost all the increase coming from the industrial sector. Full implementation of the biodiesel mandate continues to be a government priority, but as of yet, the program accounts for little more than 10 percent of total industrial use. Domestic consumption is forecast to increase in 2015/16 with the implementation of B10 mandate by 2016, but the tabling of such mandate by Parliament has yet to be approved, and the current blending rate is still at 7%. (a blend of 7% Palm Methyl Ester and 93% of Petroleum Diesel). By comparison, the current blending rate in Indonesia is 20% of palm methyl ester with 80% petroleum diesel.

Exports

Exports in 2014/15 were stagnant at 17.3 million tons from the previous year. Affected by lower prices of competing vegetable oils, and continued competition from Indonesia, shipments to major buyers China, Pakistan, and the U.S. declined. Shipments to India, on the other hand, increased 13.58 percent relative to the previous year.

As for 2015/16, exports forecasted to slightly increase to 18 million tons with strong demand from India and emerging markets in West Africa. The set-up of the Council of Palm Oil Producing Countries (CPOPC) in November 2015, will see Malaysia and Indonesia work together in promoting exports and to avoid direct competition with each other. At the time of writing no details are available yet on how CPOPC will operate and how it will manage stocks and export markets for both Indonesia and Malaysia.

As for the Trans Pacific Partnership Agreement (TPPA), there will be insignificant impact of palm oil exports to the United States as most of palm oil products are zero rated except for margarine which has 6% tariff. TPPA, however will have bigger impact on Malaysia's palm oil exports to Canada (10% tariff) and Mexico (20%).

Exports to 5 Top Markets (Oct/Sept)

Country

2009/10

2010/11

2011/12

2012/13

2013/14

% Change

2014/15

China

3,419,036

3,715,054

3,419,036

3,780,699

3,040,153

-8.23

2,789,818

India

2,374,342

1,386,576

2,374,342

2,376,251

3,034,563

13.58

3,446,690

EU

2,201,699

1,936,859

2,201,699

2,264,189

2,412,265

0.95

2,435,336

Pakistan

1,551,988

1,853,872

1,551,988

1,479,580

946,928

-21.34

744,786

USA

1,062,589

1,012,530

1,062,589

1,039,377

835,172

-15.53

705,449

Imports

Imports in 2014/15 reached over 1 million ton, and this had caused GOM to take drastic action by imposing import restriction on CPO in November 2015. Through this restriction, ending stocks can be reduced as local millers are forced to source their feedstock locally rather than importing from Indonesia. Although GOM cannot totally ban imports of CPO, for 2015/16, imports of CPO are expected to reduce to 550,000 tons. The GOM still allows existing contracts between millers and CPO suppliers in Indonesia, but new contracts are no longer allowed.

Stocks

Ending stocks for year 2014/15 were at 2.6 million tons, compared to 2.0 million tons in 2013/14. With such high stock levels, it has become a new norm for stocks to average 2.2 million tons as the market now accepts such levels. Although stocks have a direct correlation to CPO prices (high stocks level lead to lower CPO prices), the strengthening of American currency (which is used to pay for Malaysian exports to the States) relative to Malaysia currency saw the price of CPO in Malaysia currency still at acceptable levels even though its value relative to the U.S. dollar dropped by nearly 30% in the last 12 months.