Palm prices seen lower in 2022 on output rise, but firm so far

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A worker arranges palm oil fruit bunches on a truck at a factory in Tanjung Karang, Malaysia August 14, 2020. REUTERS/Lim Huey Teng

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  • Average 2022 palm oil price forecast at 4,000 ringgit/T
  • Malaysia output seen at 18.8 mln T
  • Indonesia output pegged at 48.5 mln T

KUALA LUMPUR, Jan 24 (Reuters) - Palm oil prices are set for another year of volatility and tight supply as Malaysia makes slow progress in tackling a labour crunch and government policies on green energy and food security spur demand, a Reuters poll showed.

Benchmark palm prices will average 4,000 ringgit a tonne in 2022, down 3.4% from last year's average of 4,142 ringgit, according to the median estimate of a poll of 18 analysts and those in the industry.

Malaysia crude palm oil prices vs Reuters poll estimates

Prices, which already hit a record high of 5,380 ringgit a tonne this week, are expected to stay firm during the first half of the year.

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"As we move into the low production period, supply is tight, reflecting sustained demand and the structural weakness in palm oil output," said Julian McGill, regional head at LMC International.

HIGHER PRODUCTION

Top producers Indonesia and Malaysia are both expected to see production growth for the first time in three years in 2022, according to the poll.

Indonesia's 2022 production is pegged at 48.5 million tonnes, up 3.4% from an estimated 46.89 million last year.

Malaysia's production is forecast at 18.8 million tonnes, up 3.9% from 18.1 million in 2021.

Indonesia vs Malaysia crude palm oil production estimates

Respondents expect production to build in the second half of the year, especially in Malaysia, when an army of migrant workers is expected to alleviate a labour shortage.

However, La Nina weather conditions and reduced fertiliser applications over the past three years could cap supply gains.

DEMAND DRIVERS

New policies to curb fossil fuel consumption in countries such as Brazil, China and the United States, may lift palm oil demand for use in renewable diesel and biofuel production this year, sources said.

Elsewhere, worries about food inflation could lead to demand rationing or reductions of biofuel usage mandates, which in turn could hurt palm prices, UOB's Kay Hian said in a note.

To tame domestic cooking oil prices, Indonesia imposed rules last week for exporters to seek approval for palm oil shipments, and is said to be drafting a plan to limit exports.

This could spur leading importer India to substitute palm oil with soy and sunflower oils as Malaysia's supply is unlikely to bridge the shortfall in shipments from Indonesia.

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Reporting by Mei Mei Chu; Editing by Gavin Maguire and Clarence Fernandez

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