Analysis by Poten & Partners
According to Poten & Partners, since 2000 the palm oil exports have increased from 16.6 million metric tons (MT) to an estimated 44.6 million MT in 2014 an impressive compound annual growth rate of 7.3%. Supply and demand developments in this trade point to continued growth until at least 2020.
Palm oil has long been a common cooking ingredient in tropical countries within Africa, South East Asia and part of Latin America. In recent years, the food industry in the developed world ramped up the use of palm oil in order to replace unwanted trans-fats. Palm oil is also increasingly used in biodiesel production. Still, 70% of the palm oil output is used in the food industry.
The palm oil trade is highly concentrated, with two countries, Malaysia and Indonesia, controlling the export trades with a combined market share of 90%. In 2011, Indonesia overtook Malaysia as the worlds largest palm oil exporter. In addition to using a vastly expanded acreage, Indonesia also has a practically inexhaustible supply of domestic labor. Malaysia still has the edge in productivity (yield in tons per hectare), although Indonesia is not too far behind. Outside South East Asia, the only noteworthy sizeable producers are Colombia and Nigeria.
The main importers of palm oil are China, South Asia (India, Pakistan and Bangladesh), the countries of the European Union, and the United States. India has shown the fastest growth in demand and surpassed China and the European Union as the leading global user in 2009.
Due to the heavy volumes long and distances involved, most of the worldwide palm oil trade is moved on tankers. For the intra-Asian trades, the palm oil traders mainly use dedicated small short-range chemical/product tankers. Larger Medium Range (MR) tankers are primarily deployed on the long-haul trades from southeast Asia to Europe.
Palm oil shipping is controlled by a handful of companies which are part of, or closely linked to, the worlds biggest agricultural commodities producers and traders. These companies typically have a sizeable owned fleet (mostly comprised of smaller-sized dedicated chemical/product tankers) while they charter in the larger product tankers where the opportunity for the owners of modern MRproduct tankers lies.
Since palm oils are primarily used in the food industry, they can only be transported in dedicated chemical tankers or on newbuilding product carriers delivered straight from the shipyard.
The outlook for palm oil demand remains favorable, driven by population growth, increased per capita consumption and the shift away from the use of saturated animal fats in developed countries. Increased biodiesel requirements may provide a further boost in demand as well.
The palm oil trade looks as though it will remain an attractive destination for short-term time charters for newbuilding MRs, providing a win-win for both the ship owner and charterer.
Source: Poten & Partners