KUALA LUMPUR: The labor shortage has been the biggest hurdle Malaysia’s palm oil industry has faced this year, with losses to the country amounting to billions of ringgits, but the reopening Global economy has resulted in pent-up demand for multipurpose oil.
Palm oil and rubber are the two biggest contributors to the country’s coffers in the agricultural sector, which ranked second in terms of trade, surpassing mining products, in 2020.
India consumed 40% more palm oil between January and October 2021, up 2.8 million tonnes from 1.97 million tonnes for the same period last year.
While the labor shortage affected production, it nonetheless helped push up crude palm oil (CPO) prices by 65.6%, from RM 1,728.50 to RM 4,363. 00 RM per tonne in January-November 2021 compared to 2,634.50 RM per tonne a year ago.
Plantation companies such as Sime Darby Plantation Bhd (SDP) also saw their net profit triple to RM 610 million in the third quarter ended September 30, 2021, from RM 190 million a year ago, while revenue climbed to RM 5.06 billion from RM 3.18 billion. previously.
CPO production, stocks and prices
The Malaysian Palm Oil Board (MPOB) revealed on December 10 that CPO’s production for the January-November period declined 1.14 million tonnes, or 6.4%, to 16.67 million tonnes from 17, 81 million tonnes during the period January-November 2020 due to the drop in fresh fruit bunches (FFB) processed by the mills due to the decline in FFB production.
Palm oil stocks at the end of November 2021 were 16.3% higher at 1.56 million tonnes compared to a year ago due to lower palm oil exports and increased palm oil imports.
During the reference period January-November 2020, exports of palm oil and other palm-derived products decreased by 8.8% to 22.14 million tonnes from 24.27 million tonnes, in due to the low production of CPO which limited the export capacity.
“Despite the decline in the volume of exports, higher prices for palm oil and other palm-based products influenced the total export earnings of these commodities in January-November 2021 to increase by 39 , 9% to 91.37 billion ringgit against 65.29 billion ringgit in January. -November 2020, “MPOB said.
Palm oil export earnings totaled 61.26 billion ringgit for the period January-November 2021 compared to 43.61 billion ringgit during the same period last year, resulting in a jump of 40.5%. The main export markets were India, China, the European Union (EU) and Turkey.
In the 11th month of 2021, the CPO price peaked at RM 5,341.00 per tonne from RM 3,748.50 per tonne in January.
The challenges that haunt the palm oil industry
The labor shortage was the main obstacle for the industry, especially when locals were unwilling to work in this so-called 3D job – dirty, difficult and dangerous.
The labor shortage caused FFB’s production to lose 56%, and more than 100% from 2020 and 2019. The loss, in terms of value, was estimated at RM9 billion. and 6 billion ringgit, respectively.
To overcome this, the government has agreed to add around 32,000 foreign workers to the plantation sector, provided they are fully vaccinated against Covid-19.
The problem of forced labor by the United States on two Malaysian companies, Sime Darby Plantation Bhd (SDP) and FGV Holdings Bhd, and the endless EU campaign against palm oil were other obstacles faced by the industry.
Struck by the ban on U.S. Customs and Border Protection (CBP), the SDP and FGV took steps to overcome the situation.
To recap, on December 30, 2020, the U.S. CBP issued a Withholding Tax Order (WRO) against the SDP production process, based on information that it went against all 11 indicators. of forced labor from the International Labor Organization (ILO).
The broadcast of the WRO against the SDP came in the wake of the FGV (September 30, 2020) which also involved labor practices. Both companies are committed to taking all necessary steps to lift the WRO.
In March, SDP established a Stakeholder Human Rights Assessment Commission and appointed Impactt Ltd as a third party assessor to conduct a comprehensive assessment of the group’s working practices across its operations in Malaysia.
In November, FGV appointed independent audit firm Elevate to assess the group’s operations against the ILO’s 11 forced labor indicators, as advised by CBP.
At the same time, both companies have invested heavily to save their image in the world by modernizing workers’ facilities.
The Malaysian government has also taken legal action against EU members over their anti-palm oil measures.
The Ministry of Plantations, Industries and Commodities, in cooperation with the Chambers of the Attorney General and the Ministry of International Trade and Industry, has filed a request for consultations under the dispute settlement mechanism of the ‘World organization of commerce.
Malaysia is not alone in this fight. It has partnered with Indonesia, the world’s largest palm oil producer, to challenge international discrimination against edible oil. Together, they represent 85% of global palm oil production.
Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin said she had engaged with a think tank to prepare her case and would participate in litigation against the EU’s alleged discrimination in early January 2022.
In her recent interview with the Malaysian Palm Labor Facts, hosted by the Malaysian Palm Oil Council, Zuraida said she seeks to build a relationship based on trust and fair trade rather than geopolitical tensions.
“We will also use means to exchange unambiguous information with the EU on the sustainability of our palm oil industry. These include the ASEAN EU Joint Palm Oil Working Group and other collaborative projects.
When tabling the 2022 budget, the government announced an allocation of Ringgit 20 million for the industry to counter international anti-palmist activities.
Mixed grants on sector
Stock brokers have mixed recommendations on the industry for 2022, in part due to their internal views on industry performance and demand / supply factors.
MIDF Research is “positive” on the industry, with a target price of RM3,000 per tonne for the CPO. He also expects stocks to improve slightly to pre-pandemic levels. But he fears that the vegetable oil may face lower demand from major importers due to the lower price of soybean oil and higher production costs.
CGS-CIMB Securities Sdn Bhd maintains its “neutral” recommendation with CPO prices expected at RM 4,270, RM 3,600, RM 3,240 per tonne for 2021, 2022 and 2023, respectively.
CPO prices could likely remain elevated, at least for the first three months of 2022, before falling as palm oil supply picks up and oilseed crushing activities improve, the house said. of scholarship.
The best choices for CGS-CIMB are Kuala Lumpur Kepong Bhd, Hap Seng Plantations Holdings Bhd, and Genting Plantations Bhd.
Meanwhile, RHB Investment Bank Bhd maintains an “underweight” call, but raised the CPO’s price assumptions to RM 4,000, RM 3,700 and RM 3,000 per tonne for 2021, 2022 and 2023, respectively. He believes that valuations would be held back by environmental, social and governance concerns, which would cause plantation shares to be traded well below their historical valuations.
What’s new in 2022?
The industry will enter 2022 with two years of experience in an unprecedented pandemic period. Therefore, Omicron or any future variant should be manageable, as long as they do not affect the arrival of foreign labor.
“It is understood that Covid-19 has severely affected the labor supply in the oil palm sector, which has strongly affected production. We hope that the emergence of the new variant will not further delay the arrival of foreign workers, ”Malaysian Palm Oil Board Director General Dr Ahmad Parveez Ghulam Kadir told Bernama.
As production is expected to increase, CPO prices in general are likely to be lower on average.
According to Ahmad Parveez, details on the 2022 outlook will be discussed at the 2022 Palm Oil Economic Review and Outlook Seminar on January 13.
However, he estimated that the Omicron threat would not significantly affect demand which will remain strong even if the variant causes another wave.
Next year, Bursa Malaysia Derivatives will continue its overnight trading session for the key palm oil futures and other commodities to attract local and overseas market players.
In other developments, the government has revealed that it will increase the use of palm oil-based biodiesel under Malaysia’s 12th plan, from the current B7 and B10 biodiesel to B15 and B20 biodiesel. The government plans to fully switch to the use of B30 biodiesel by 2025. – Bernama