Global palm oil production is booming, but the basic oleochemicals market is saturated, according to Frost & Sullivan. To achieve higher margins and grow their global market share, the market research firm said major producers Malaysia and Indonesia will need to exploit the full potential of high-value derivatives markets, which include biolubricants and surfactants used in lubricants.
Production of palm oil is expected to reach 84 million metric tons per year worldwide in 2020, a volume equal to 45 percent of the worlds demand for vegetable oils by that time. Frost & Sullivan pointed to these insights in a series of press releases – one issued last week and one in May – based on observations of developments in the industry.
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Oleochemicals, manufactured from palm oil and other plant and animal oils, are used as feedstocks for biolubricants, among other applications such as soaps, detergents and biofuels.
Despite the potential oversupply, most players currently in the market are actively expanding crude palm oil production, with at least two or three new players expected to enter the market shortly, thanks mainly to tax incentives introduced in the past few years.
Yields from Indonesia leads the production surge, with a compound annual growth rate of 7.8 percent projected for the next five years. Malaysia is the second-largest producer, but its growth in coming years is only pegged at 2.7 percent.
That may be because Malaysia hasnt yet fully tapped into what the firm said are unexploited opportunities in the downstream sector. Malaysia and Indonesia may need to find new applications for palm oil in order to take up the slack caused by increased crude oil palm supply, said Chris de Lavigne, Frost & Sullivans global vice president of consulting.
The basic oleochemicals market is saturating and stagnating as well as suffering from low margins, he continued. Malaysias focus will now have to shift from basic oleochemicals to high-value oleo derivatives, [to increase its share of the global derivatives market] from a current 1 percent to a forecasted 40 percent by 2020.
Such products include surfactants and biolubricants, de Lavigne said.
With 16 production facilities and counting, and a 20 percent share of the global production capacity,Malaysia is the worlds largest producer of basic oleochemicals, according to the Malaysian Investment Development Authority.
But for Malaysia to take a lions share of the high-margin, high-value oleochemicals market, it will need to continue to implement government-backed incentives. Otherwise, it will continue to be trumped by its neighbor, Indonesia, which is several strides ahead, de Lavigne continued.
Malaysia and Indonesia are at slightly different developmental phases and have different policy agendas and objectives, he noted. Indonesia is on a fast track to catch up in the refining and downstream sector, and their policies reflect this objective.