35 ANNUAL INTEGRATED REPORT 2021 ADDITIONAL INFORMATION HOW WE ARE GOVERNED REINFORCING SUSTAINABILITY 2022 OUTLOOK PALM OIL World vegetable oil production and consumption is expected to increase driven by population growth. The global palm oil market is poised to generate USD33 billion in revenue by 2022 as demand is forecasted to increase by 6.50% in 20226. Leading palm oil importers would still be China and India, the two most populous nations in the world. Supply • In 2022, the average CPO price is expected to stay high, ranging around RM4,000/Metric Tonne (MT) to RM4,500/MT due to current low supply and subdued production outlook for soybean on the back of drought in South America. • The prevailing low supply is also due to the impact of a prolonged La Nina weather forecast that could lower Indonesia’s and Malaysia’s palm oil production growth in 2022. Demand • The demand outlook is expected to grow on the back of better economic activities locally and globally. • Global awareness on climate change impact has elevated the need for a decarbonisation policy. This can be a driver for biodiesel demand. The upcoming biodiesel mandates from United States and Indonesia is much anticipated as palm oil would be the best alternative vegetable oil to fill up any gaps in biodiesel demand. • However, the demand for palm oil could reduce once India increase its import duty rates and China receives more supply of soybean oils and lard. Another looming impact on demand is the aggressive anti-palm oil campaign in Europe where palm oil’s use as biodiesel feedstock is to be fully phased out by 2030. Latest Developments In the first quarter of 2022, Crude Palm Oil (CPO) price has increased further to an unexpected high of RM8,000/MT due to several factors: • Indonesia’s initial measure to restrict export with the Domestic Market Obligation (DMO) policy. This policy has since been abolished and replaced with the imposition of a higher export levy. • Geopolitical tensions caused by the Russia and Ukraine hostilities are impacting edible oil prices on the back of supply disruption concerns. Palm Oil Conference 2022 highlights this uncertainty with experts providing an average price forecast of RM4,000/MT to RM9,000/MT depending on how the situation escalates. LOGISTICS & OTHERS • The global logistics industry continues to grow driven by the increase in e-commerce and trade activities. Malaysia sees the growth in global trade as an opportunity to set up the country as a regional logistic hub. As economic and social activities are allowed to operate once the pandemic is declared as endemic, Malaysia’s service sector is expected to grow partly driven by increased demand in retail and wholesale trade, transportation & storage, and food & beverages. The continuation and acceleration of major infrastructure projects such as Light Rail Transit Line 3 (LRT3), Mass Rail Transit 3 (MRT3) and Johor-Singapore Rapid Transit System will also further support the industry’s growth. Resumption of travel and tourism activities is speeding up recovery in the hospitality and restaurant industry which will push up demand for logistics and transport services. • The information and communication industry is expected to expand driven by broader internet usage in line with the continued surge in e-commerce, e-learning, online entertainment activities and digital transformation towards Big Data Analytics, Artificial Intelligence (AI), Internet of Things (IoT) and Cloud Computing. The implementation of infrastructure projects under the National Digital Network (JENDELA) will also facilitate the transition to the fifth-generation cellular network (5G) spectrum, hence enhancing network speed and internet coverage. SUGAR There is an expected softening in the NY11 price of raw sugar following improved outlooks for sugar crops in Brazil, India and Thailand. Growing global and domestic consumption is also trending as vaccinations gain momentum and the world moves past lockdowns. • Wholesale Segment: Demand is expected to improve as in-store dining and retail operations are allowed to open up again and the travel and hospitality sector picks up. • Industry Segment: Industry offtake is on the rise as full operations resume. • Export: Demand is growing with Asia Pacific recording 4 million MT per year for refined sugar7. • Freight and container costs are abating as demand recovers. World Sugar Balance (Million MT) 2021 2022 2023 2024 2025 176 174 87 179 176 87 182 178 88 184 180 89 187 183 91 Production Consumption Ending stocks Source: OECD-FAO Agricultural Outlook (2021) World Vegetable Oil (Million MT) 2021 2022 2023 2024 2025 220 223 227 229 232 219 222 225 229 232 Production Consumption Source: OECD-FAO Agricultural Outlook (2021) 6 Source: Palm Oil Supply and Demand Outlook Report 2022 by Council of Palm Oil Producing Countries 7 Wilmar
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