In 2021, the price of oil palm in Thailand continued to rise and set new records several times with the annual average price reaching THB6.7/kg. KResearch believes that the price of Thai oil palm should be able to maintain a high price of THB 7.5-9.5/kg in the first quarter of 2022, in line with the upward trend of global crude palm oil prices. Meanwhile, to stabilize domestic oil prices, the biodiesel formula was adjusted to B5 during February-March, but this caused domestic oil palm prices to drop from a peak of THB10.3/kg in January 2022. Looking ahead, close attention must be paid to the outlook for global crude palm oil and energy prices, particularly the impact of the Russia-Ukraine conflict on domestic energy and oil palm prices, plus the future biodiesel blend ratio. It is expected that prices of Thai oil palm may decline to THB4.5-6.5/kg during 2Q22 in line with higher oil palm outputs, while demand will remain uncertain as the selection of biodiesel formula depends largely on global crude oil prices, but the average oil palm price will likely to stay above the guaranteed price of THB4/kg.
KResearch believes that the average oil palm price in Thailand will fall to about THB5.3-7.3 per kilogram in 2022, between the range of a 20.5% year-on-year decrease and a 9.3% year-on-year increase, due to increased supply and more effective management to solve the harvest labour shortage. Demand for palm oil is likely to grow gradually with the released pent-up demand, compared to the average price of the past five years (2017-2021); the average oil palm price in 2020 can still maintain a high level of about THB4.2/kg. However, farmers will face increasing cost pressures, and some are turning to more expensive crops such as rubber and durian. In the long run, these factors will influence farmers’ decisions to plant oil palm. In addition, global health and environment trends, as well as the boom in the use of electric vehicles, may also lead to more severe challenges for Thai oil palm in the future.
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