Malaysian Floods and Old Trees are Expected to Constrain the Worldwide Palm Oil Market

Kuala Lumpur: The second-largest Palm Oil supplier in the world, Malaysia, is expected to face production challenges this year as a result of floods and older trees. According to the Chief Executive of the Malaysian Palm Oil Association, production in Indonesia and Malaysia may only climb by a meager 3% this year. Production will be limited in the medium term, and fruit quality may suffer due to logistical and harvesting issues caused by Malaysia's heavy rain and flooding.

In addition, there are now more trees older than 25 years old, which means that a portion of the plantation will be less productive. Sabah, the top-producing state in Malaysia, now has the largest area of trees above that age in the entire nation due to slow replanting and high prices. Concerns about the possibility of increasing food prices are raised by a tightening Palm Oil market at the same time that central banks hike interest rates to control inflation. With the predicted transition from La Nina to El Nino this year, weather threats are also rising. Almost the majority of the world's Palm trees are planted in Southeast Asia, but the change in the weather cycle could dry up Palm Oil farms there.

The Palm Oil root systems have suffered severe damage over the last three years of La Nina, according to market statistics, and it may take some time for them to recover even though rooting fertilizers are still being applied. As a result, fresh Palm fruit bunches could be smaller and contain less oil.

As per the ChemAnalyst database, the prices for Palm Oil are likely to increase in the near future, and Palm Oil prices may be supported near 3,999 ringgit ($892.14) per tonne due to the tight supply outlook. From the start of February, prices have fluctuated over that mark. Other noteworthy occurrences include China's recovery following the end of Covid Zero, the continued conflict between Russia and Ukraine, and Indonesia's policies restricting exports of Palm Oil and increasing its biodiesel requirement.