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Sustainability is a Key Challenge Restricting Market Growth
Crude palm oil (CPO) has grown from strength-to-strength in the last two decades, now representing one-third of the vegetable oil market. Growth has largely been driven by consumption in the emerging markets such as China and India. New demand markets in the last decade, such as biodiesel, have also played a major role regarding consumption trends. Consequently, CPO has become more closely correlated to energy prices, which has thus has the effect of propelling CPO prices into a new trading range. Frost & Sullivan predicts that the market will be short term bearish due to global economic instability but mid- to long-term bullish due to the continued demand for palm and land scarcity.
•Crude palm oil (CPO) has grown from strength to strength in the last two decades witnessing an average growth rate of X% year-on-year to become the largest vegetable oil consumed by volume, now representing one-third of the vegetable oil market. Were palm oil to sustain such a rate of growth over the next decade—demand and land availability permitting—it would become close to a X-million ton market by 2022.
•Growth has largely been driven by consumption in emerging markets such as China and India. However, the average consumption of vegetable oils at X kilograms (kg) per capita in China and X kg per capita in India remains well below that of the West, which stands at about Xkg per capita, thus offering a further upside in the food segment, which accounts for the bulk of palm demand.
•In the last decade, new demand markets, such as biodiesel, have also played a major role regarding consumption. Biodiesel now consumes around X million tons of vegetable oil on a global basis, equating to approximately X% of vegetable oil usage.
•Consequently, CPO has become more closely correlated to energy prices, which has the effect of propelling CPO prices into a new trading range, and likely with it a new floor, as the former prices at $X per ton seem to long be buried.
•This, coupled with the fact that palm oil has firmly found its place within the newly favored agricultural asset class which remained in the doldrums for many years, will ensure that prices remain fairly high.
•However, because global economies have been unstable since the financial crisis of 2008 and have not yet fully recovered, palm oil has witnessed tremendous volatility over the last 5 years, be it annually, quarterly, monthly, and even on a daily basis. Stocks are at an all-time high, crimping prices in the short term.
•The market is, thus, short-term bearish but mid-to-long-term bullish due to continued demand as well land availability in Indonesia becoming scarcer.
•In spite of this upward trend, it is clear that CPO has several key challenges that it will need to meet in order to keep growing at this pace to meet demand.
•With land being at a premium, it will, first, be important to address the yields being obtained from palm plantations, and second, to speculate if Africa and South America can and will play an increasing role in this sector.
•Sustainability is, however, arguably the most important aspect of this industry. Whilst Malaysia has made good in-roads towards adhering to the Round Table for Sustainable Palm Oil (RSPO) guidelines, the Indonesian Palm Oil Association (GAPKI) has abandoned this system in favor of the Indonesian Sustainable Palm Oil (ISPO) system.
•More work on this front will need to take place, though it is encouraging to see the Indonesian Government placing moratoriums on deforestation. These issues from both an environmental and investment point of view should not be taken lightly.
Introduction to Palm Oil
•The consumption of palm oil began X years ago, which is obtained from the fruits of the oil palm tree, also known as the Elaeis Guinnesis tree, which originated in West Guinea.
•When Europeans reached Africa to explore the continent in the 15th century, they discovered the palm tree, thus introducing it to the rest of the world. The cultivation of palm spread globally, and in the 19th century, the trade of palm oil began.¹
•In the 20th century, the oil palm tree was introduced into Malaysia and palm oil began to be produced commercially in 1917. Palm oil started to take off in the mid-1980s, with large commercial planting and cultivation of the plant in Malaysia and Indonesia in the early to mid-1990s; until then, palm had largely been a smallholders crop, however smallholders remain important in this sector.¹
•Palm oil is exported to more than Xcountries and at its current rate of growth, palm oil and its products will continue to be the most sought-after edible oil in the global market.
•Oil palm's uniqueness comes from its ability to produce two types of oil. Palm oil is available through the flesh of the fruit whereas, palm kernel oil is obtained from the seed or kernel.
•One ton of palm kernel oil is available from everyXtons of palm oil. Both oils have different carbon compositions and are predominantly used in the food industry value chain.
Introduction to Palm Oil—Products and Processes Discussion
•Palm oil is made by extracting the oil from the fresh fruit bunch to make CPO. It can then be further refined, bleached, and deodorized (RBD).
•To produce palm oil that satisfies users' requirements, it has to undergo several processes, beginning with processing at the mil to extract crude palm oil from the fruit.
•Next, the crude palm oil is processed at the refinery to remove impurities such as free fatty acids (FFAs), color, unwanted flavor, and odors.
•Moreover, palm oil is readily available to the process of fractionation to separate the liquid oil from the higher melting solid portions. Consequently, a variety of grades of olein (liquid) and stearin (solid) are obtained, thus enabling food manufacturers to select the specifically needed properties.
•Hydrogenation and trans-esterification may also be used to further widen the applications of palm oil and its fractions.
Table Of Contents
1. Executive Summary
2. Introduction to Palm Oil
3. Upstream Palm Oil Market Analysis
4. Downstream Palm Oil Market Analysis
5. Pricing Analysis of Palm Oil and Influencing Factors
8. The Frost & Sullivan Story
To order this report: Palm Oil Market Outlook to 2020
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