2016 outlook

Global oils and fats production is expected to increase by only 0.5% to 206.5 million tonnes in 2016, compared to 204.9 million tonnes in 2015. Demand is likely to grow to 207.5 million tonnes. It will exceed supply as unfavourable weather, resulting from the effects of El Nino, is anticipated to curtail production growth of oil crops.

Palm oil will supply more than 30% of the global oils and fats needs. World palm oil output is projected to reach 64 million tonnes, up by just over 1 million tonnes compared to 62.8 million tonnes in 2015. Malaysian CPO production is expected to continue growing, from 19.96 million tonnes currently to 20.09 million tonnes.

In the Americas, soybean output may reach record levels in the three main countries – USA is expected to exceed 105 million tonnes, while Brazil and Argentina could jointly produce 150 million tonnes despite adverse weather forecasts for South America. Stock levels will expand, leading to a higher stock usage ratio vis-à-vis 2015.

The International Monetary Fund predicts that global growth, estimated at 3.1% in 2015, will go up to 3.4% in 2016 and 3.6% in 2017. This is a more gradual rise than projected in the World Economic Outlook report of October 2015, especially in emerging markets and developing economies. In advanced economies, modest and uneven recovery is expected to continue, with further narrowing of output gaps.

The picture for emerging markets and developing economies is diverse but also, in many cases, challenging. The slowdown and rebalancing of the Chinese economy, lower commodity prices, and strains in some large emerging market economies will continue to weigh on growth prospects for 2016-17.

The projected pick-up in economic activity over the next two years – despite the slowdown in China – primarily reflects forecasts of gradual improvement of growth rates in countries currently in economic distress – notably Brazil, Russia and some in the Middle East. However, this partial recovery could be frustrated by new economic or political shocks.

Demand for palm oil will expand for use in food and biofuel feedstock. In the latter case, the Americas have raised their biodiesel blending requirement, while Indonesia is determined to implement its 20% blending mandate. Crude oil prices and drastic changes in weather patterns will exert a heavy influence on the palm oil price, but it can be sustained – and perhaps improve – in 2016.


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