Palm oil prices will witness a “year of two halves” in 2022, with pressure from South East Asia’s peak production period, and demand hits from economic turbulence, to keep values well below spring highs.

Anglo-Eastern Plantations, which operates over more than 75,000 hectares of planted land in Indonesia, said that palm oil prices, which in the benchmark Kuala Lumpur market have been staging a recovery from a mid-July low, “are expected to weaken in the second half of 2022”.

The forecast reflects in part the entry of the top producing nations, Indonesia and Malaysia, “into the high producing season”.

Output tends to peak in both countries in September or October, before easing back to lows around February.

‘Flush out stocks’

“In addition, the Indonesian government’s decision to waive the export levy until the end of August 2022 in its effort to flush out and reduce its stockpile of palm oil could push prices even lower,” Anglo-Eastern Plantations said.

Indonesia’s palm oil stocks soared to 7.23m tonnes in May, up by 36% year on year, after the country imposed a short-lived export ban on the vegetable oil in an attempt to keep a lid on domestic cooking oil prices.

The group also cautioned of the potential pressure on prices from any accord between Kiev and Moscow which would boost exports of sunflower oil, a key rival to palm oil, from top grower Ukraine.

Furthermore, “economists fear that inflationary pressure arising from higher commodity prices could trigger a worldwide recession in the coming months which could dampen demand” for palm oil.

‘Year of two halves’

Anglo-Eastern Plantations added that it was “increasingly apparent that 2022 will be a year of two halves, with record CPO [crude palm oil] prices in the first half of 2022 and much lower prices in the second half”.

However, it flagged the potential for some support for prices from moves by the Indonesian government to boost the mandated blend of biodiesel – made in the country mainly from palm oil – into transport diesel

“On a positive note, the Indonesian government’s determination to develop and increase the biodiesel blending to B35 [a 35% blend of biodiesel in diesel] and B40 from B30 in the near future would help enhance the domestic consumption and absorb a higher production of CPO.”

Indonesia used some 7.3m tonnes of palm oil for making biodiesel last year, according to industry group Gapki.

Price moves

The comments came as palm oil futures for November on the benchmark Kuala Lumpur market closed at 4,258 ringgit per tonne on Wednesday, 22% above a mid-July low, but well below the record intraday high for a benchmark contract of 7,268 ringgit a tonne set on March 9.

Palm oil futures averaged 5,691 ringgit a tonne in the first quarter of 2022, and 6,089 ringgit a tonne in the second quarter, according to Rabobank, which has forecast a dip to 3,900 ringgit a tonne for the July-to-September period and 3,800 ringgit per tonne in the last three months of the year.

Anglo-Eastern unveiled earnings up 46% at $68.84m for the first half of 2022, on revenues up 26% at $249.2m, as the boost from higher prices more than offset an easing in production thanks to weather and replanting effects.