OVERVIEW OF THE MALAYSIAN OIL PALM INDUSTRY 2007

The Malaysian oil palm industry recorded an impressive performance in 2007. Prices of all oil palm products registered significant gains and export earnings rose 41.8% to a record RM45.1 billion.
The total oil palm planted area increased by 3.4% to 4.3 million hectares in 2007. The area expansion occurred mainly in Sabah and Sarawak with a combined growth of 6.1% compared to 1.2% in Peninsular Malaysia. Sabah remained the largest oil palm planted state with 1.27 million hectares or 30% of the total planted area.
The production of CPO declined marginally by 0.4% to 15.8 million tonnes in 2007 from 15.9 million tonnes in the previous year. The decline was mainly attributed to the effects of flood damage during the early part of the year and biological stress, which affected the palm trees especially during the first half of 2007. The average fresh fruit bunches yield per hectare fell by 2.9% to 19.0 tonnes, while the oil yield per hectare saw a 2.5% year-on-year decrease to 3.83 tonnes, despite the oil extraction rate (OER) increasing marginally by 0.4% to 20.13 %. Crude palm kernel oil production also registered a decline of 2.5% to 1.91 million tonnes in tandem with lower palm kernel (PK) production.
The total exports of oil palm products, constituting palm oil, palm kernel oil, palm kernel cake, oleochemicals and finished products declined by 3.0 % to 19.56 million tonnes in 2007 from 20.16 million tonnes recorded in 2006. The total export earnings, however, increased by 41.8% or RM 13.3 billion to RM 45.1 billion compared to RM 31.8 billion in 2006. Exports of most of the oil palm products registered declines in 2007 compared to the previous year, led by finished products with a decline of 16.5%, followed by palm oil and palm kernel cake falling by 4.8% and 1.9% respectively. Exports of palm kernel oil and oleochemicals, however, increased by 14.1% and 3.4% respectively.
Exports of palm oil declined by 4.8 % to 13.74 million tonnes from 14.42 million tonnes in 2006. China, P.R maintained its position as the biggest export market for Malaysian palm oil for the sixth consecutive year, with off-take totalling 3.84 million tonnes or 27.9% of total palm oil exports, followed by the European Union 2.06 million tonnes (15.0%) , Pakistan 1.07 million tonnes (7.8%), USA 0.79 million tonnes (5.8%), Japan 0.53 million tonnes (3.8%) and India 0.51 million tonnes (3.7%). Together these six (6) countries accounted for 8.81 million tonnes or 64.1% of total Malaysian palm oil exports in 2007. The decline in palm oil exports was mainly attributed to the fall in exports to the European Union which was down by 0.52 million tonnes or 20.2%, followed by Bangladesh (-0.28 million tonnes or 64.7%), Jordan (-0.15 million tonnes or 96.1%) and Myanmar (- 0.08 million tonnes or 57.1%).
The decline in exports to the EU by 20.2% to 2.06 million tonnes from 2.59 million tonnes attained last year was due to the increase in domestic vegetable oils production, especially rapeseed oil which recorded 6.7 million tonnes in 2007, up by 6.0% from 6.4 million tonnes in 2006. Apart from that, in the energy sector, some European companies reportedly have slowed-down in their use of palm oil for energy purposes arising from the sustainability issue. Malaysian palm oil exports to Bangladesh declined by 64.7% to 154,494 tonnes as against 438,152 tonnes the previous year due to higher imports of soyabean oil. It was estimated that total soyabean oil imports doubled to reach 467,000 tonnes in 2007 as compared to 270,000 tonnes a year before. Meanwhile, the decline in exports to Myanmar by 57.1% to 59,735 tonnes was largely attributed to competition from Indonesian palm oil, which had gained a bigger market share in this country.
Exports of palm kernel oil increased by 14.1% from 930,676 tonnes in 2006 to 1.06 million tonnes in 2007. USA was the major market for palm kernel oil in 2007 with 0.24 million tonnes, followed by China P.R (0.16 million tonnes), the EU ( 0.14 million tonnes) and Japan (0.08 million tonnes).
Exports of palm kernel cake declined by 1.9% to 2.09 million tonnes from 2.13 million tonnes in 2006. The major palm kernel cake export markets were the European Union (1.34 million tonnes or 63.8% of total palm kernel cake exports), South Korea (0.23 million tonnes or 11.2%) and Australia (0.23 million tonnes or 10.8%).
The major markets for oleochemicals were the European Union (0.63 million tonnes or 28.2% of total oleochemical exports), USA (0.30 million tonnes or 13.5%), China, P.R (0.26 million tonnes or 11.6%), and Japan (0.18 million tonnes or 8.0%). The major oleochemical products exported were fatty acids (0.90 milion tonnes or 40.4% of total oleochemical exports), followed by fatty alcohol (0.40 million tonnes or 17.9%) and methyl ester ( 0.33 million tonnes or 15.0%).
Exports of finished products declined by 16.5% to 351,183 tonnes from 420,650 tonnes in 2006. The major markets for palm oil finished products in 2007 were Russia (10.4% of total exports of finished products), the European Union (8.4%), Pakistan (7.3%), Saudi Arabia (6.6%) and Kuwait (5.8%). The major products exported under this group was shortening, accounting for 189,453 tonnes or 54.0% of total finished product exports.
Palm oil stocks closed at 1.68 million tonnes, up by 11.7% compared to 1.51 million tonnes last year. The lower palm oil exports contributed to the higher closing stocks . However, palm kernel oil stocks finished lower by 25.9% attributed to the decline in production and higher exports.

The average price of oil palm products in the domestic market rose sharply in 2007. The firmness in prices was influenced by the structural changes in the global oils and fats supply and demand and the increase in crude oil price. CPO price is now closely correlated to that of crude oil and often moves in tandem with it. The average CPO price increased by 67.5% or RM1,020.00 to RM2,530.50 in 2007 against RM1,510.50 in the previous year. Prices were traded in a narrow range during the first three (3) months of 2007 and subsequently, higher for the remaining months of the year. The lowest and highest monthly average price recorded was in February and November at RM1,927.00 and RM2,965.00 respectively. In line with the sharp gains in local CPO prices, the average export price for processed palm oil products also increased, namely, RBD palm oil by RM1,106.00 or 72.1% to RM2,640.00; RBD palm olein by RM966.50 or 59.6% to RM2,588.00; and RBD palm stearin by RM1,015.50 or 67.9% to RM2,511.50.
The average price of palm kernel (PK) in 2007 increased by 63.8% or RM569.50 to RM1,461.50 from RM892.00 in the previous year. Prices firmed during the year due to the decline in production and higher crude palm kernel oil prices in the domestic market. The average price of crude palm kernel oil (CPKO) increased in 2007 as a result of increasing demand and firmer lauric oil prices in the world market. The average price CPKO rose by 47.2% or RM900.00 to RM2,807.50 in 2007 from RM1,907.50 the previous year. In the case of fresh fruit bunches, its average price at 1% OER rose in tandem with the higher CPO and PK prices by 69.3% to RM26.07 from RM15.40 in the previous year. This average price of fresh fruit bunches is equivalent to RM 525/tonne in 2007 as against RM 308/tonne in the previous year based on the national OER.
Crude palm oil production is forecast to rise to 16.2 million tonnes in 2008 because of a recovery in yields and an expansion in matured area. However, the outlook for palm oil prices continues to remain positive in view of the global oils and fats tightness and the volatility of crude oil prices.

From MPOB..