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In 2010-11 a total of some 68 million tonnes of oils and fats was exported worldwide. Within this total, palm oil and palm kernel oil accounted for the largest individual export total at 41.2 million tonnes, significantly ahead of soybean oil, the second largest at 10.0 million tonnes. Palm and palm kernel oil also had the highest ratio of export to production at 75%, again materially higher than for any of the other oils or fats.
Significant price movements have always been a feature for the leading oils and fats traded on world markets. Monthly average palm oil prices, CIF Rotterdam, reached a high of $705 per tonne in 1998, then falling to a low of $234 per tonne in 2001 before recovering to trade more steadily in a range of $400 to $500 per tonne for the next four years. In the second half of 2006, prices started to rise steeply and reached levels of US$1,249 in March 2008. Prices remained high until July 2008 when, in line with other commodities and as a result of the developing world financial crisis, prices started to fall materially, reaching a low point of around $500 per tonne at the end of that year. Prices have since recovered progressively, reaching levels above $1,100 per tonne by the end of 2011. The average CPO price, CIF Rotterdam, for the ten year period 2002 – 2011 has been $664 per tonne.
The 1997/98 El Niño drought had a detrimental effect on the 1998 FFB crop and thus CPO output; this, coupled with the reduction in export supplies from Indonesia, following the imposition by the Indonesian Government of an export ban that was subsequently replaced by an export tax on CPO, lead to a marked decrease in world supply and resulted in downward pressure on worldwide palm oil stocks. As a result, international export prices for palm oil were at historically high levels during 1998.
Starting in 1999, however, prices fell significantly, reflecting a surge in the production of CPO in both Malaysia and Indonesia as post El Niño production recovered to more normal levels. The market also reflected the increasing prospect of Indonesian producers returning to the export markets as the Indonesian government progressively reduced export tax.
Following the El Niño event in 1997/98, the world stocks of oils and fats fell to a low of 12.0 million tonnes in September 1998 (1.40 months consumption). Stock levels then increased through the three year period to September 2001, reaching 14.8 million tonnes (1.53 months consumption) at that date before falling to 12.7 million tonnes (1.22 months consumption) at September 2003. End September stock levels in the seven years to 2010 increased in every year except 2007 and stood at a level of 19.2 million tonnes (1.35 months consumption) in 2010.
Palm oil has followed the general trend of prices within the oils and fats complex as a consequence of its interchangeablility with other members of the complex.
Over the last decade total production of oils and fats has grown by over 50%. Production of the major oils, derived from palm, soybean, rapeseed and sunflowerseed, grew by over 70% and accounted for some 88% of the increase in world output of all oils and fats.
Over this period, the production growth rates for the 17 major oils and fats varied considerably. Within the major vegetable oils, palm oil and palm kernel oil expanded by 102% and 88%, respectively, soybean oil by 54%, rapeseed by 67% and sunflower by 40%. Production of animal fats showed significantly lower growth at 12%, primarily due to their being by-products from processes serving other, slower-growing markets and marine oil production has reduced materially. The combined share of world production held by palm oil and palm kernel oil increased from 23% in 2000 to over 30% in 2011.
Production of oils and fats totalled 176 million tonnes in 2011 of which palm oil and soybean production were respectively 48 million tonnes and 42 million tonnes, thus together accounting for 50% of the total. Production of palm oil has grown faster than that of any other oil or fat and overtook soybean as the most produced oil in 2005.
Oil palm, oilseed rape and sunflower are the vegetable oil crops grown for their oil content and production of these has responded more directly to the changes in world demand for oils and fats. For the other major vegetable oil crop, soybean, the oil is produced as a by-product to soybean meal, a product that is directed at the world protein market.
World consumption of oils and fats has grown steadily during the last twenty five years. ‘Oil World’ statistics indicate that consumption in the last five years has increased from a level of some 148 million tonnes in 2006 to 176 million tonnes in 2011.
The growth rate in recent years has been higher than the rate that prevailed in the 1990’s due to the incremental demand from the biofuels market. In the period from 1999 to 2005, annual increases in consumption were typically in the range of 4 to 5 million tonnes and arose primarily from the growth in demand for oils and fats as a food. Annual increases in consumption thereafter have been higher and reflect the additional use of oils and fats as biofuel feedstock.
Consumption in each country tends to favour locally produced oils and fats. In North America, Europe and the Soviet Union, annual seed crops are the main sources of oil; in tropical countries, coconut oil and palm oil, together with groundnut oil, are the main types produced and consumed.
World average per capita consumption of all oils and fats has also grown progressively each year during the last decade from a level of 18.9 kg in 2001 to 25.2 kg in 2011. Consumption per capita is closely related to income. In 2011, per capita consumption was some 50 kg and 61 kg in the US and the EU27 respectively, compared to levels of 15 kg and 25 kg for India and China respectively. At low income levels, elasticity of demand is high, whereas at high income levels, elasticity is reduced to values close to zero. It may be expected, therefore, that the highest increases in consumption will be exhibited in those low to middle income countries, where increasing per capita income can combine with relatively high rates of population growth. These high growth countries will tend to be in the developing world where palm oil has traditionally been strong.
Palm oil competes directly with other oils and fats in most of its applications and demand is therefore determined by its competitive position within the overall world market for these products.
There are three main categories of oils and fats: vegetable oils, marine oils and animal fats.
Although, technically, most oils and fats are interchangeable, processing costs and specific end-use requirements limit the range within which oils and fats are actually substituted. This leads to price premiums and discounts within the market. In general, oils derived from coconut, palm kernel, groundnut and cottonseed tend to be the most highly priced.
Palm oil, together with soybean, rape and sunflower oils, falls into the medium-priced category, and sells at a premium over marine oils, generally the cheapest of the oils. Palm oil, soybean oil, rapeseed oil and sunflower oil together form the most important constituents by volume within the overall market with palm oil normally being priced at a discount to the other three oils.
In the food industry, palm oil is used as a cooking oil and shortening and in the manufacture of margarine, non-dairy creamers and ice cream. It is also used in products where animal fats are unacceptable on religious grounds.
Palm oil has a high resistance to oxidation and therefore a long shelf life. These properties make it particularly suitable for use in hot climates and as a frying fat in the snack and fast food industry.
Traditionally, the main non-food uses for palm oil have been in the manufacture of soaps and detergents and in the production of greases, lubricants and candles. More recently, the biofuels market has provided a significant new non-food use for palm oil where it is used as the feedstock for the production of biodiesel and as an alternative to mineral oils for use in power stations. The fatty acid derivatives of palm oil are used in the production of bactericides, cosmetics, pharmaceuticals and water-treatment products.