Following rapid growth in the past few years, the Malaysian palm oil industry went through unprecedented times in 2012 with lower crude palm oil (CPO) production, as well as lower palm oil prices and exports. The average CPO price for the year slipped 14% to MYR 2,764 per tonne from a record-high of MYR 3,219 per tonne in 2011, while export revenue of palm products declined 11% to MYR 71.5bn.

CPO production in 2012 declined marginally to 18.79mn tonnes, attributed to lower fresh fruit bunch (FFB) yield due to tree stress after a strong FFB production period in 2011. Higher palm oil opening stocks, higher imports by 6.5% and lower palm oil exports by 2.4% contributed to the huge closing stocks for the year. Meanwhile, the oil palm planted area in 2012 increased 1.5% to 5.08mn hectares due to increase in planted area in Sarawak.

Effective January 1, 2013, Malaysia lowered its CPO export tax rates to create a level playing field vis-à-vis its Indonesian peers and provide an export outlet for the huge stockpiles. The government has also shown keen interest in subsiding oil palm replanting scheme and raising domestic demand for palm biodiesel to prevent escalating stockpile. CPO prices are envisaged to stage a modest recovery in 2013, barring any changes to the global economic recovery.

Key Points:

• Palm oil stocks in 2012 closed at record-high 2.63mn tonnes, a surge of 27.7% year on year. Higher palm oil opening stock and imports as well as lower palm oil exports contributed to the huge closing stocks.

• The average CPO price in 2012 was MYR 2,764, down 14.1% against record-high MYR 3,219 in 2011, mainly due to concerns over the build-up in palm oil stocks.

• The average FFB yield decreased 4.1% to 18.89 tonnes per hectare in 2012 after experiencing a year of high yield, while the national oil extraction rate (OER) remained steady at 20.35%.