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OIL PALM INDUSTRY
THAILAND INDUSTRY OUTLOOK 2016-18
August 2016
Wareerat Petchseechoung
[email protected]
+662 296 4741
Krungsri Research’s View:



The drought has depressed oil palm outputs in the main producing countries. Consequently, global crude palm
oil stock has declined, and its price is increasing slightly. Domestic palm oil demands for direct consumption and
alternative energy purposes are also rising. These trends suggest that the Thai oil palm businesses could
continue to grow.
Volatile weather poses a risk to the industry as it could lead to occasional shortages of raw materials for palm
oil productions and, subsequently, refined palm oil and biodiesel.
Overview
There are many types of vegetable oil produced and consumed in
the world, such as coconut oil, olive oil, cotton oil, peanut oil,
soybean oil, sunflower oil, canola (rapeseed) oil, and palm oil; they
all are substitutable to some extent. Globally, plantation area for oil
palm accounts for around 5% of all oil crops. Nonetheless, oil palm
possesses a high potential of oil production per area of up to 6-10
times of other plants. 1/ The output of palm oil thus stands at a
significant proportion of 40% of global vegetable oil productions.
World’s oil palm major plantation areas are located in Southeast
Asia; Indonesia and Malaysia have combined outputs of 52.5
million tonnes or 85% of global production. Both countries thus
play a significant role in directing and determining prices of palm oil
in the world market. Thailand ranks third, in both plantation area
and output.
Since the plantation areas of oil palm predominantly cluster in a
single region, as high as 75% of palm oil outputs are traded in the
world market. Due to increasing demand for food and alternative
energy, palm oil’s trade volume in the global market expanded 5.1%
p.a. on average, during the last five years. Major consuming and
importing countries include India, the EU, and China; their
combined imports account for 50% of the total. Today, the world’s
major exporter is Indonesia, as the country’s rapid increase in oil
palm productions in the last ten years (partly a result of investment
expansion by Malaysian investors), surpassing Malaysia’s level since
2006. Currently, Indonesia and Malaysia occupy world export
shares of 53.4% and 37.9% respectively.
As for Thailand, it ranks third in the world in terms of plantation
area and output. Thai oil palm production records approximately
11-13 million tonnes p.a., which can be extracted into palm oil of
about two million tonnes p.a. or only 1.2% of world’s share.
Figure 1: Share of World Vegetable Oil
Plantation and Production
Plantation
Others
32%
Sunflower
10%
Rapeseed
13%
Production
Sunflower Oil
9%
Others
14%
Canola (rapeseed) Oil
15%
Palm
5%
Soybean Oil
26%
Soybean
40%
Palm Oil
36%
Source : LMC International.
Figure 2: World Palm Oil Producers
million tonnes
35
30
25
20
15
10
5
0
2011
2012
Indonesia
2013
Malaysia
2014
2015
Thailand
Others
Source : USDA
Oil palm plantation area and palm oil extraction plants are mostly
located in the Southern region2/. However, during 2008-2012, there
were expansions to the Northern, Central, and Northeastern
regions, per the government’s strategy to increase new oil palm
plantation area to meet the nation’s demand for alternative energy
plans. In 2015, Thailand’s oil palm plantation covered an area of
4.7 million rais and output of 11.01 million tonnes, with the
growth rates of 5% and 7% p.a., on average, in the last ten years
respectively.
1/ Oil production per rai of oil-bearing crops are: oil palm (for crude palm oil): 512 kg/rai, oil palm
(for palm kernel oil): 73 kg/rai, canola (rapeseed): 89 kg/rai, sunflower: 81kg/rai, coconut: 54
kg/rai, soybean: 52 kg/rai, and peanut: 51 kg/rai
2/ Palm oil extraction plants are usually located close to the raw materials site because palm
bunches need to be delivered to the facility within 24 hours to achieve the highest extraction
efficiency.
Krungsri Research
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Thailand Industry Outlook 2016-18 Oil Palm Industry
Figure 3: Thailand Oil Palm Plantation and Production
million tonnes
million tonnes
5
14
12
4
10
3
8
2
6
4
1
2
2015
2014
2013
2012
2011
2010
2009
2008
2007
0
2006
0
2005
Regrettably, Thailand’s output has increased only because of
plantation area expansion and not from productivity enhancement.
More than half of the production has been grown from the palm
seed with low oil extraction yield of only 14-17%, compared to
Malaysia’s 20% and Indonesia’s 22%. Also, most Thai farmers own
small-scale of plantations with an area less than 10-20 rais, while
more than 80% of palm plantations in Malaysia and Indonesia
operate on a large scale. They typically lack the expertise concerning
the selection of palm seeds (they still rely on imported seeds),
preservation of fresh palm, harvesting period (premature harvesting
would reduce oil extraction yield), as well as, incur high
transportation costs. Given these disadvantages in the upstream
industry, the entire Thai oil palm supply chain thus finds it difficult
to compete with those from Indonesia and Malaysia. The
government has therefore introduced various intervention
measures, such as palm oil import quota under the supervision of
the Thailand Oil Palm Board (OPB) who administers policies and
plans for management and development of oil palm industry3/. The
Department of Internal Trade (DIT) under the Ministry of
Commerce also regulates selling prices for all stages of the supply
chain including:
Plantation Area (LHS)
Harvested Area (LHS)
Production (RHS)
Source : OAE
1) Fixing the price for fresh palms giving 17% oil extraction
yield to be paid by extraction plants to palm planters, having taken
returns to farmer into consideration.
Figure 4: Structure of Thailand Oil Palm Industry
145 Palm Oil Mills
14 Refinery Plants
Annual Production Capacity:
22.8 million tonnes of
crude palm oil (CPO)
Annual Production Capacity:
2.4 million tonnes of
93-95% refined palm oil
60% Refined Palm Olein
Collection
Center
(Ramp)
Fresh Oil Palm (100%)
- Fresh fruit bunch 87%
- Loose fruit 13%
separating and
cleaning
(soap, animal feed, coffee
whiteners, B100)
Export Destinations:



ASEAN (54%)
EU (16%)
Others (30%)
%
7,098.90
79.30
1.1 Wage
3,002.95
33.55
Stock
1.2 Fertilizer
2,470.05
27.59
1.3 Others (seed &
agri-machinery)
1,625.90
18.16
11% of final
demand
1,853.07
20.70
Total Costs per rai
8,951.97
100.00
Total Costs per kg
3.13
40% of
RBD Olein
(instant noodle, non-dairy
creamer, ice cream)
Average Cost (2015)
2. Fixed Cost
Industry
Export
12% of final
demand
THB / year
1. Variable Costs
60% of
RBD Olein
41% of final demand
30% Refined Palm Stearin
Refined, Bleached, and
Deodorized Palm Oil
(RBDPO)
Cost
Household
Domestic
Consumption
Palm Fatty Acid
(Chemical Industry)
By Product





Palm Kernel (CPO)
Shells (Charcoal briquettes)
Kernel Meal (Animal Feed)
Fiber (Biomass)
Cake Decanter (Biogas)
12 Biodiesel Plants
Annual Production Capacity:
6.18 million litres of biodiesel
Alternative
Energy
36% of final
demand
Transportation
(B3.5 – B7)
Source : OAE
3/ Under the World Trade Organization (WTO), Thailand has set two rates of import duty for palm
oil, i.e. the first 4,860 tonnes of import are subject to 20% tariff and for the amount beyond the
initial quota, a rate as high as 143% is imposed. Meanwhile, import duty under ASEAN Free Trade
Area (AFTA) is set at 0%, provided the merchandise has to be imported solely through the Public
Warehouse Organization.
Krungsri Research
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Thailand Industry Outlook 2016-18 Oil Palm Industry
100
80
60
68
68
70
32
32
30
2011
60
55
53
55
40
45
47
45
40
20
Consumption
2015
2014
2013
0
2012
As a result of such market distortion, the cost of palm oil production
in Thailand is usually higher than Malaysia’s palm oil price – which is
commonly used as a reference for the world price. Therefore, around
90% of Thai oil palms are produced to serve the domestic purposes.
The remainder would be exported with a quantity varying from year to
year. Meanwhile, import is still small but appears to be increasing in the
form of smuggling, which is particularly pursued when the spread
between the domestic and world prices stretches wider than THB4,
which would cover the transportation cost.
% of total consumption
2010
3) Classifying bottled refined palm oil as controlled goods whose
domestic retail prices are to be officially controlled by DIT – at the
moment, the price of a bottle of one-litre refined palm oil is set at
THB42.
Figure 5: Share of Domestic Consumption
2009
2) Assigning a minimum selling price of crude palm oil (CPO) that
palm oil extraction plants, biodiesel producers, and other buyers of
crude palm oil will pay to the crude palm oil operators (The price
typically depends on the global crude palm oil price and is currently set
to be THB26.2/kg.)
Biodiesel
Source : OAE
Domestic consumption of palm oil are in three categories:
o
Intermediate goods to other downstream industries (22% of
domestic market) including candy and instant noodles (30% of all
consumption in industries other than cooking oil and biodiesel), soap
(20%), condensed milk and non-dairy creamer (15%), and other
consumer products like plastics, cosmetics, and lubricants (35%).
o
The raw material in the biodiesel production (B100) whose demand
has been rising steadily from 32% share in the total domestic
consumption of crude palm oil in 2009 to 45% in 2015.
The distribution of palm oil output gives priority to domestic cooking
oil demand. The government, by the Department of Energy Business,
regulates biodiesel production with some flexibility in the proportion of
palm oil in the content mix, according to the palm oil output situation
after allocating for direct consumption. In addition, in the case of a
substantial fall in domestic palm production or the government’s crude
palm oil inventory oil dropping below the buffer stock (usually
maintained at around 250,000 tonnes), temporary import of palm oil
would also be permitted.

Situation
During the last five years, businesses in oil palm industry’s supply
chain have been growing satisfactorily.
o
Oil palm plantations: The authority has imposed import quota of
palm oil and occasionally intervened the market with regulating
settlement prices and adjustments of the required concentration of
B100 in the biodiesel mix. These actions have resulted in a high
selling price and subsequently satisfactory profits to the oil palm
planters, especially when compared to growers of other crops.
o
Crude palm oil extraction plants: The business has expanded in line
with the rising domestic demand, especially for biodiesel
production. Crude palm oil extraction plants have also been able to
adjust selling price along with the cost of fresh domestic palm. An
investigation reveals a high correlation between fresh palm and
crude palm oil prices of 98% in the last ten years. Besides, the price
Figure 6: Sales Volume Thai Palm Oil Industry (2015)
Domestic Market
Domestic
Market
91%
Export
9%
Biodiesel
45%
Input to
Other Industries
22 %
Direct Consumption
(Cooking Oil)
33 %
% Share of other
industries
Snack & Instant
Noodles
30
Soap
20
Non-dairy Creamer
15
Others
35
Source : DIT
Figure 7: Farm Gate Prices of Thai Oil Palm
THB/kg
9
8
7
6
5
4
3
2
1
0
Apr-16
Direct consumption of refined palm oil for cooking in households
and restaurants (33% share of all domestic market uses). For all
vegetable oils, palm oil occupies a significant 65% share in Thailand,
followed by soybean oil, rice bran oil, and others at 25%, 5%, and 5%
shares respectively.
Jan-07
Jul
Jan-08
Jul
Jan-09
Jul
Jan-10
Jul
Jan-11
Jul
Jan-12
Jul
Jan-13
Jul
Jan-14
Jul
Jan-15
Jul
o
Source : OAE
Krungsri Research
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Thailand Industry Outlook 2016-18 Oil Palm Industry
Palm oil refinery plants: Domestic demand has been increasing
steadily, in line with economic growth and the rising demand to
substitute palm oil for other vegetable oils (esp. soybean oil). Even
though the price of Thailand’s refined palm oil is higher than those
from Malaysia and Indonesia, the products from these two
countries possess some unfavorable properties to Thai users, such
as having dark red color and high fat content4/. As such, the import
of refined palm oil as vegetable oil for direct consumption does not
influence the domestic market significantly. However, the
business’ profit still depends on the difference between the cost of
crude palm oil and domestic selling price (regulated by DIT).
Recently, the cost of crude palm oil has risen, the margin from the
selling of palm oil for consumption has got narrower.
Thailand oil palm industry in 2015 was rather stable. Rubber planters
switched to grow palm oil as the world rubber price had plummeted
since 2011. Together with the increased demand provoked by the
government’s alternative energy plan, this has resulted in expansions
of oil palm cultivation in recent years. However, the severe drought in
2015 has dwindled output per rai, Thailand’s overall output
consequently shrank by 1.2% from 2014. The activity of crude palm oil
extraction plants has thus slowed down, evidenced by Manufacturing
Production Index (MPI) that dropped from 79.1 to 75.3.
Domestic demand increased 5.9% YoY from:
o
o
Demand for consumption increased 12.1% YoY along with the
expansion in the downstream industries. However, the MPI of
palm oil refinery plants increased only slightly from 122.2 to 122.5
because the government had allowed the import of palm oil for
use as intermediate goods following domestic shortage in early
2015.
Demand for palm oil as an input in the production of biodiesel
decreased 1.1% YoY, as a result of the Ministry of Energy reducing
the proportion of palm oil in the content mix of biodiesel from 7%
to 3.5% in 1Q2015. The measure was introduced temporarily
(effective during January 20th to April 16th, 2015) as palm oil
output reduced and producers used material from inventory.
Palm oil exports decreased substantially (-72.9% YoY) due to a drop in
domestic oil palm production and the need to refill the buffer stock to
cushion against shortage after the severe drought that had prolonged
beyond expectation. Thailand’s palm oil stock in 2015 rose to the
highest level in three years at 334,000 tonnes. It was mostly due to
the expansion in the stock of crude palm oil plants, palm oil refinery
plants, and palm oil warehouses to serve the continuing increase in
consumption demand, while the biodiesel plants only increased palm
oil stock slightly.
THB/kg
USD/tonne
Thai CPO (LHS)
World CPO (RHS)
60
1,400
1,200
50
1,000
40
800
30
600
20
400
10
200
-
-
Apr-16
o
Figure 8: Crude Palm Oil (CPO) Prices
Jan-07
Jul
Jan-08
Jul
Jan-09
Jul
Jan-10
Jul
Jan-11
Jul
Jan-12
Jul
Jan-13
Jul
Jan-14
Jul
Jan-15
Jul
of domestic crude palm oil also depends on movements in the
global crude oil price, which have incorporated demand and supply
conditions in the world, as well as, the impact of other vegetable
oils (e.g. soybean oil) as substitutes. In any case, Thai crude palm
oil extraction plants also face pressures from the crude palm oil
sometimes smuggled from Malaysia to be used in productions of
other consumption industries. This is due to the price of Thai crude
palm oil is still much higher than Malaysia’s – even when
transportation cost is included.
Source: DIT and KSS
Figure 9: Thai Palm Oil Stock Balance
‘000 tonnes
Production
Import
Domestic Con.
2012
2013
2014
2015
1,892.6
2,135.2
2,000.6
2,068.5
40.1
0.0
0.0
53.2
1,558.6
1,729.9
1,781.8
1,886.5
-Refined Oil Industry
932.3
957.9
939.4
1,053.3
-Biodiesel Industry
626.4
772.0
842.4
833.2
Export
307.4
565.4
255.3
68.0
Ending Stock
364.2
204.0
167.6
334.7
Source: DIT and OAE
Figure 10: Palm Oil Ending Stock (by player)
‘000 tonnes
150
2014
2015
100
50
0
Extraction
Mills
Refinery
Plants
Warehouses
Biodiesel
Plants
Source: DIT
4/ Refined palm oil in Thailand is mostly produced for household consumption (as vegetable oil).
As it has to compete with soybean oil, the production process needs to deliver high-quality oil
(e.g. with clear yellow color). Thai distilling process removes a higher proportion of the fatty
contents than that from Malaysia and Indonesia, as their products are typically used in other
production and not direct consumption. With thick color and more low-grade fats, palm oil from
Malaysia and Indonesia has a lower price.
Krungsri Research
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Thailand Industry Outlook 2016-18 Oil Palm Industry
Outlook
million tonnes
million tonnes
12
70
60
10
50
8
40
6
30
4
20
Production (LHS)
Ending Stock (RHS)
2015
2016F
2014
2013
2012
2011
0
2010
0
2009
2
2008
10
2007
Prices of fresh palm and palm oil in Thailand in the next 1-3
years are expected to improve only slightly. It is because the
robust demand is partly offset by the increase in output following
the recent expansions of cultivation area, especially during 20082012 (in general, the new oil palm plantation will be harvestable
after 2.5-3 years, and the oil extraction yield would be high during
the age 8 to 25 years). Furthermore, as El Nino is fading,
increased rainfalls is expected. Hence, palm oil extraction yield
and, subsequently, palm oil stock would go up.
Figure 8: Global Palm Oil Production,
Consumption, and Ending Stock
2006
Demand for palm oil is likely to increase further, especially for
the production of biodiesel following the government’s plan (see
Thailand’s Oil Palm Industrial Development Plan). Meanwhile, the
growth of consumption demand for palm oil as vegetable oil
could be quite limited, as the price of substituting soybean oil is
expected to remain low, given the outlook of world soybean
price. Demand for oil palm thus would increase but not by much.
The growth of demand for palm fat extracted from the refining
process is expected to slow down. This is because the industries
that use crude palm oil and palm fat have turned to import semifinished raw materials, and some operators have moved their
production bases to other locations with lower oil palm cost.
2005

Consumption (LHS)
Source: USDA
As for the outlook of Thailand’s oil palm, it is expected that protective measures would carry on, and liberalization of
palm oil industry would not happen in the near future (palm oil is among the 23 items of Thailand’s list of sensitive
products under ASEAN Free Trade Area: AFTA). This would help foster further growth of Thailand oil palm industry in the
next 1-3 years.
In the long term, Malaysia and Indonesia are working together to establish the Council of Palm Oil Producing Countries
(CPOPC) like the Organization of Petroleum Exporting Countries (OPEC). The CPOPC could expand to include other palm
oil producing countries like Brazil, Colombia, and Thailand. This would enhance the bargaining power of the members,
stabilize the world’s palm oil price, and benefit oil palm operators globally.

Thailand Oil Palm Industrial Development Plan
The Office of Agricultural Economics (OAE), Ministry of Agriculture and Agricultural Cooperatives, has set out the Oil
Palm and Palm Oil Industries Development Strategy 2015-2026. It aims to accomplish the following objectives:
o Supply side: Expanding oil palm plantation area by additional 3 million rais, while increasing output per rai from 3.2
to 3.5 tonnes and improving production to achieve oil yield of 20% – which would double oil palm production to
more than 21 million tonnes.
o Demand side: Boosting domestic demand through 1) increasing oil consumption by approximately 300,000 tonnes
or an average of 3% p.a.; and 2) encouraging the use of palm oil for the production of alternative energy, while
maintaining exports of palm oil at 0.3-0.7 million tonnes p.a.
o Promoting the ASEAN Sustainable Palm Oil (ASPO) standard and laws relating to the oil palm industry to include
provisions that facilitate palm output research and development by 2019.
The Alternative Energy Development Plan for
2015-2036 (AEDP2015) by the Department of
Alternative Energy Development and Efficiency,
Ministry of Energy: The AEDP2015 has reference
to the Oil Palm and Palm Oil Industries
Development Strategy 2015-2026. It covers
assessments of oil palm output from the areas
suitable for cultivation nationwide and the net
balance of palm oil stock consumption to
determine a potential for future biodiesel
production. The current target is to produce 14
million litres of biodiesel per day by 2036.
Palm Oil Potential for the Production of Biodiesel
2015 1/
2017 1/
2019 1/
2026 1/
2036 2/
Targeted cultivation area (million rai)
4.5
5.0
5.5
7.5
10.2
Oil palm output (million tonnes p.a.)
14.3
15.4
16.7
21.4
29.5
Crude palm oil (million tonnes p.a.)
2.6
2.9
3.2
4.3
5.9
Crude palm oil balance (million tonnes p.a.) 3/
1.6
1.9
2.0
2.9
4.2
Maximum production of biodiesel (million litre/day) 4/
5.6
6.5
7.1
10.0
14.0
Potential Palm Oil
Note: 1/ Oil Palm and Palm Oil Industries Development Strategy 2015-2026
2/ Output extrapolation based on areas suitable for cultivation of palm nationwide
3/ Crude palm oil remaining balance before deducting export volume
4/ Estimates based on fatty acid methyl esters (FAME) diesel
Source: Department of Alternative Energy Development and Efficiency (2015)
Krungsri Research
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Thailand Industry Outlook 2016-18 Oil Palm Industry
KRUNGSRI RESEARCH
Somprawin Manprasert
Chief Economist
Phornphan Phoksuphat
Head of Strategic Research
Industry Team

Chetchuda Chuasuwan
Head of Industry Research

Jumpon Kluaymai-ngarm
Industry Strategist

Talublugkhana Thanadhidhasuwanna
Industry Strategist (Financial Sectors: Thailand & CLMV)

Poonsuk Ninkitsaranont
Senior Analyst (Healthcare, ICT, Transportation & Logistics, Modern Trade)

Piyanuch Sathapongpakdee
Analyst (Industry Risk Ratings Scoring and Reporting)

Narin Tunpaiboon
Analyst (Power Generation, Biofuel, Chemical & Plastic Products)

Puttachard Lunkam
Analyst (Tourism Sectors, Real Estate in Upcountry)

Niratsai Toomwongsa
Analyst (Construction Contractor, Construction Materials)

Wanna Yongpisanphob
Analyst (Automobile, Electronics & Electrical Appliances, Beverages)

Wareerat Petchseechoung
Analyst (Agricultural Products, Food)

Rachot Liengchan
Analyst (Oil & Gas, Petrochemicals, Industry Scenario Analysis)

Patchara Klinchuanchun
Analyst (Real Estate in BMR)
Definition
Industry Outlook assesses market conditions and trend of the industry which will determine businesses’ profitability. It considers potential
growth, price changes, cost management, competitiveness, and other conditions affecting the market.
Positive
Rather Positive
Fair
Rather Negative
Negative
The industry is expected to benefit from several positive factors and deliver strong performance, which could include continually high
profitability, in the next few years.
The industry is expected to earn abnormal profits, though there may be some concerns, such as, slower growth rate of income or
sensitivity to changes in economic conditions.
The industry is expected to operate normally with average level of profits and risks.
The industry is expected to experience some issues adversely affecting the returns. Profitability is lower than the typical level. Some
time may be needed for the industry to recover.
The industry is expected to suffer from persistent or severe problems and is at risk of losses. This could include a situation where the
market contracts substantially or there are major production issues.
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Disclaimer
This document is based on public information believed to be reliable. Nevertheless, Strategic Research Department would not affirm the accuracy and
completeness of this information. The opinions expressed in this document are our own, which are not necessarily the opinions of Bank of Ayudhya.
We reserve the right to change opinions or forecast without prior notice.
Krungsri Research
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