Why palm oil prices are set to rise in 2019

Kuala Lumpur - Costs linked to crude oil market due to growing use of the commodity in making renewable fuels

Benchmark international palm oil prices are set to climb in 2019 amid declining growth in global output and higher drawdowns in reserves as biodiesel consumption rises, a leading industry analyst said.
Palm oil futures on the Bursa Malaysia Derivatives Exchange slipped almost 8 per cent in February, with the market last week trading around 2,160 ringgit a tonne.
"If Brent settles at $65, the [free on board] price will be $580, or 2,360 ringgit, a tonne, and at $60 a barrel, it would be $550, or 2,240 ringgit, a tonne," analyst James Fry told an industry conference in Kuala Lumpur. Brent crude oil is currently trading around $65 a barrel.
Palm oil prices are linked to the crude oil market due to the growing use of the commodity in making renewable fuels, Fry said.
Expansion in biodiesel production is also helping to draw down inventories and support prices, he added.
Palm oil inventories in Indonesia and Malaysia, which together account for over 80 per cent of global supply, rose to record highs in 2018.
World palm oil production growth is expected to slow in 2019, with output rising by 2.8 million tonnes to 70.9 million tonnes, Fry said.
Global palm oil production climbed by five million tonnes in 2018 from the previous year. Fry said his output figures were based on production from the eight largest crude palm oil producers in Southeast Asia and Latin America, after allowing for new maturing areas and reductions in fertiliser use.
He estimated that global palm oil stocks would fall by one million to 1.5 million tonnes in 2019, if Indonesia holds to its so-called B20 mandate that stipulates biodiesel must have a bio-content of 20 percent, and if Malaysia successfully implements a B10 mandate. 
In Indonesia, demand for the use of crude palm oil to make biofuels and direct burning is expected to grow by 1.5 million tonnes in 2019 due to the higher biofuel mandates and power generation, the analyst said.
Indonesia and Malaysia, the world's top two producers of palm, have brought in higher biodiesel mandates in recent months to boost consumption of the commodity.