Oil Palm Industry Economic Journal Vol. 13 (1) March 2013 p. 1-13

Impact of Palm Oil Supply and Demand on Palm Oil Price Behaviour

Ayat K Ab Rahman*; N Balu and Faizah Mohd Shariff
Received:    Accepted:    Available Online:


The article will highlight the impact of supply and demand and market sentiment factors on the Malaysian palm oil price behaviour, and will examine their impact in 2013. The price of crude palm oil (CPO) is dependent on many factors that vary from time to time, such as fundamental factors, i.e. both supply and demand factors in the world market and unpredictable market sentiments, e.g. extreme weather phenomenon, political crisis, new policies or regulations, and impact of natural disasters. The CPO price in 2012 is a good example where it was affected negatively by a combination of both supply and demand factors. From the supply perspective, the CPO stock build-up arising from high carry-over stocks at the beginning of the year and an increase in CPO production had contributed to its bearishness in 2012. From the demand side, it is a weaker export demand from major importing countries, like China, P R and Pakistan. The introduction of Malaysia’s new CPO export tax structure effective 1 January 2013 is likely to result in an increase in palm oil exports and, thus, indirectly to a reduction in the high palm oil stock levels in the country. Moreover, the B5 programme which is to be expanded throughout Malaysia in 2013/2014 will also reduce the level of palm oil stock availability in the country. Besides that, the Malaysian palm oil supply growth in 2013 is expected to increase moderately due to the introduction of the oil palm replanting scheme with a government allocation of RM 100 million for this purpose. The scheme is expected to see the replanting of 100 000 ha of unproductive palms and palms over the age of 25 years. These scenarios will indeed be a positive indication of the firming up of CPO prices in the market place in 2013. The article will also incorporate the use of an econometric modeling method for an analysis of the factors affecting CPO price behaviour.

About Post Author


* Malaysian Palm Oil Board,
6 Persiaran Institusi, Bandar Baru Bangi,
43000 Kajang, Selangor, Malaysia.
E-mail: ayat@mpob.gov.my