World Economy

Palm Oil Production Surpasses Global GDP Growth

Palm Oil Production Surpasses Global GDP GrowthPalm Oil Production Surpasses Global GDP Growth

Palm oil production in Indonesia has increased in line with consumption and has surpassed the global GDP growth, thereby indicating that the global palm oil market will continue to grow, Indonesia Credit Rating Agency's (ICRA) analyst stated.

Setyo Wijayanto stated that palm production in the last five years grew by 6.6 percent or recorded around 59.5 million metric tons (MT) in 2014, based on the compound annual growth rate, Antara News reported.

Setyo pointed out that palm production has grown in line with consumption growth, which reached 6.2 percent or equal to 57.3 MT within the same period.

"Indonesia and Malaysia are the main producers in the global market. Both countries collectively accounted for about 85.2 percent in average of the global palm oil production during 2010-2014," he remarked.

Meanwhile, he pointed out that palm oil and soybean oil are the largest global vegetable oil commodities. Their consumption constitutes around 61 percent in average of the global vegetable oil consumption.

  High Supply

Although palm oil has a competitive edge over its replacement commodity, the high supply of soybean in the global market will affect the price.

Moreover, in March 2015, soybean production increased from 47.1 million MT to 47.4 million MT. The increase in soybean production has improved its supply in the global market to around 3.6 million MT as compared to only 3.3 million MT in January 2015, which has affected the palm oil prices.

However, in line with the global economic slowdown, the demand for palm oil has also declined in the past three months despite an increase in its production, he said.

ICRA Indonesia estimates that palm oil prices will continue to face pressure and will hover in the range of $650-700 per metric ton in 2015, considering the aforementioned factors apart from the possible influence of the El Nino phenomenon that cannot be predicted so far.

The Indonesian government, in its efforts, continues to levy policy on its palm oil exports and also decreased the base export price in response to the prolonged pressure on palm oil prices.