SUPPLY AND DEMAND – OPIEJ

An Examination of Sources of Instability in Export Earnings of Malaysian Palm Oil

mpob_admin — Tue, 28 Aug 2018 14:10:12 +0000

Malaysian export earnings from the animal and vegetable oils and fats sector had been fluctuated in the past. The major component of this sector is obviously that of palm oil which is also highly volatile and in tandem with the total earnings from the animal and vegetable oils and fats sector. It is the aim of this article to assess the instability of the Malaysian palm oil export earnings by using one of the latest techniques in modeling called generalized autoregressive conditional heteroskedasticity (GARCH). The model shows that palm oil export earnings is really instable. Sources of the instability were then sought through literature and the key determinants of the instability are prices of crude palm oil (CPO) and soyabean oil, exchange rate, palm oil export volume and production, and gross domestic products (GDP) of Malaysia’s major trading partners. These key determinants were linked in a multivariate regression model with the export earnings. Results showed that the most significant factors are prices of CPO and soyabean oil. Thus, price of palm oil had played a major role in causing the instability of the Malaysian palm oil export earnings. To stabilise the earnings, one needs to stabilise first the price of palm oil in the market which is exposed to the vagaries of market forces of supply and demand.

World Palm Oil Supply, Demand, Price and Prospects: Focus on Malaysian and Indonesian Palm Oil Industries

mpob_admin — Tue, 28 Aug 2018 14:06:44 +0000

The oils and fats sector had shown that both its production and consumption had increased at almost the same rate in the past. Any differences between them will indicate either an oversupply or shortage situation of oils and fats in the world; oversupply occurred when production exceeded consumption and shortage when the situation was reversed. Thus, world production and consumption of oils and fats in 1976 were 45.9 and 47.3 million tonnes respectively (shortage) while in 2010 both were at about 171.2 million tonnes (almost equilibrium). Among the 17 oils and fats, palm oil has expanded the most in the production and consumption of the oils and fats. It began as one of the minor oils being produced and consumed in 1976 (1.6% and 6% of the world production and consumption of oils and fats respectively) and gradually surged to become the largest produced and consumed oil in 2010 (both at about 28% of the world production and consumption of oils and fats). Palm oil will continue to be the main oil produced and consumed due to its high productivity, cheaper price and healthiness. Its production in Malaysia is expected to be about 18.33 million tonnes while Indonesia will produce about 24.91 million tonnes in 2011. As Malaysia has a constrain to expand its oil palm area due to lack of suitable land, increase in future production is expected to be through increase in its productivity. Palm oil price is associated closely with its main competitor, soyabean oil, and lately crude petroleum price also had an influence. However, there are other factors that need to be considered in evaluating price of palm oil. Taking them into consideration, price is projected at RM 3217 t in 2011 with the first half of year being higher than the second half.

Lessons Learned from Sustaining Remunerative Palm Oil Prices – The Malaysian Experience

mpob_admin — Tue, 28 Aug 2018 06:46:34 +0000

The volatility of the crude palm oil (CPO) prices over the increasing long-term trend in the past has created instability in the earnings for the country and the returns for the industry. The volatility has been caused by the fundamentals – supply and demand factors. Despite this fact, it is important for us to sustain palm oil price at high levels in order to have good returns. It was observed that prior to sustaining high prices, the market was usually bearish with high stock levels. Strategic measures are required to ensure that palm oil stocks are well managed. In this regard, certain measures are undertaken under the stock management programme by the government, including CPO burning as biofuel for power generation, biodiesel usage in the country (called Bx) and replanting programmes which are generally aimed at reducing the stock level in the country. The swift proactive action undertaken by the government should be lauded as it does provide some respite to the palm oil industry with prices firming up and sustained at high levels.

Recent Developments of Malaysian Palm Oil Stock Level

mpob_admin — Tue, 28 Aug 2018 06:34:35 +0000

The level of palm oil stock is a strong indicator of its price and it comprises crude palm oil and processed palm oil. In the past, the palm oil stock has for a long time hovered around 1 million tonnes, and this volume has become the psychological level below and above which prices tend to be bullish and bearish, respectively. The end stock mainly depends on the production and export of palm oil, while imports and local consumption play minor roles. Based on changes in the supply and demand factors, it was estimated that 1.8 million tonnes could be considered as the new level of palm oil stock for the Malaysian palm oil industry.