Palm Oil: A storm in a Pot Noodle

Palm oil recently hit a five-year low, but the Chinese demand could see prices pick up.

Andrew Van Sickle
By Andrew Van Sickle
published

Palm oil is one of the commodity market's more obscure sectors. But last week, Sime Darby, one of Malaysia's biggest palm oil producers, made a splash by offering £1.1bn for London-listed New Britain Palm Oil.

The deal is driven by a shift towards sustainable, environmentally friendly production methods: New Britain is one of the experts in this field. Yet Sime Darby paid an 85% premium, which to some appeared steep, given that benchmark palm-oil futures recently hit a five-year low below Rm2,000 (Malaysian ringgit) a tonne.

Demand from China and India fell below expectations in the first half, and stockpiles in Malaysia, a major supplier, are at a 19-month high.

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But prices may be due a rebound. Lex in the FT notes that the palm oil price drop seems to be due to widespread stockpiling of soya oil, an alternative vegetable oil, ahead of a supply squeeze expected next year.

China's palm oil imports have been flat, yet overall vegetable oil imports are up by 17% in 2014. Longer term, ageing plantations and environmental regulations are set to hamper supply, while demand as an ingredient in processed foods is climbing.

Chinese instant-noodle production jumped by 20% last year. The recent price slide "could just be a storm in a Pot Noodle cup".

Andrew Van Sickle
Andrew Van Sickle

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

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