29 January 2010

Crude Palm Oil

Oil

Palm is one of the commercially cultivated oilseeds having its

origin from West Africa where it was cultivated as wild and later developed into a commercial crop. It was introduced to Java by the Dutch in 1848 and Malaysia (then the British colony of Malaya) in 1910 by Scotsman William Sime and English banker Henry Darby. The first plantations were mostly established and operated by British plantation owners, such as Sime Darby. From the 1960s a major oil palm plantation scheme was introduced by the government with the main aim of eradicating poverty. Processing of oil palm for edible oil has been in practice in Western Africa for thousands of years. The oil extracted is highly coloured and flavoured, is an essential ingredient in most of the tradition West African cuisine. The traditional process of processing is simple, but tedious and inefficient. Palm trees may grow up to sixty feet and more in height. The trunks of young and adult plants are wrapped in fronds which give them a rough appearance. The older trees have smoother trunks apart from the scars left by the fronds which have withered and fallen off. A normal oil palm tree will start bearing fruits after 30 months of planting and will continue to be productive for the next 20 to 30 years thus ensuring a consistent supply of oil. Each ripe bunch is commonly known as Fresh Fruit Bunch (FFB). In Malaysia, the trees planted are mainly the tenera variety, a hybrid between the dura and pisifera. The tenera variety yields about 4 to 5 tonnes of crude palm oil (CPO) per hectare per year and about 1 tonne of palm kernels. The oil palm is most efficient, requiring only 0.25 hectares to produce one tonne of oil

while soybean, sunflower and rapeseed need 2.15, 1.50 and 0.75 hectares respectively.
The palm fruit is the source of both palm oil (extracted from palm fruit) and palm kernel oil (extracted from the fruit seeds). Palm oil itself is reddish because it contains a high amount of beta-carotene. It is used as cooking oil, to make margarine and is a component of many processed foods. Boiling it for a few minutes destroys the carotenoids and the oil becomes colourless. Palm oil is one of the few vegetable oils relatively high in saturated fats (like coconut oil) and thus semi-solid at room temperature.

History The oil palm tree was discovered thousands of years back in Western Africa. European merchants having trade with West Africa purchased palm oil occasionally for use in Europe. But its importance as an edible oil remained rare outside West Africa mainly because of its bulkiness and cheaper source of oil compared to others. During the 14 th to 17th centuries some palm fruits were taken to the America and from there to the Far East. The plant thrived best in the Far Eastern countries and provided the largest commercial production base by removing its importance from centre of origin. Palm oil became a highly adored commodity by British traders, the oil being used as industrial lubricant for the machines of Britain's ongoing Industrial Revolution, as well as forming the basis for different brands of soap. By 1870, palm oil constituted the primary export of some West African countries such as Ghana and Nigeria. The extensive development of oil palm industries in many countries in the tropics has been motivated by its extremely high potential productivity. The oil palm gives the highest yield of oil per unit area

compared to any other crop and produces two distinct oilspalm oil and palm kernel oil both of which are important in world trade. Chemical Composition & Uses The Palm Oil and Palm Kernel oil are composed of fatty acids esterified with glycerol. The Palm oil is rich source of carotenoids, the pigment found in plants and animals, from which it derives its deep red colour. The major component of its glycerides is the saturated fatty acid palmitic. Presence of palmitic fatty acid, it looks like a viscous semisolid at tropical climate and a solid fat in temperate climates. Both are high in saturated fatty acids, about 50% and 80%, respectively. The oil palm gives its name to the 16 carbon saturated fatty acid palmitic acid found in palm oil; monounsaturated oleic acid is also a constituent of palm oil while palm kernel oil contains mainly lauric acid. It is the largest natural source of tocotrienol, part of the vitamin E family and also high in vitamin K and dietary magnesium. Importance The oil palm is now grown as a plantation crop in most of the countries receiving minimum rainfall of 1600 mm/year because of its economic importance and high yielding source of edible oil. The palm tree bears fruit in bunches varying in weight from 10 to 40 kg. Each fruit ranging from 6 to 20 gm is made up of an outer skin called as exocarp, a pulp called mesocarp contain the palm oil in a fibrous form. Central nut consists of a shell known as endocarp and the kernel, which also contains oil.

Ideal composition of palm fruit bunch Bunch weight Fruit/bunch Oil/bunch Kernel/bunch Mesocarp/bunch Mesocarp/fruit Kernel/fruit Shell/fruit 23-27 kg 60-65 % 21-23 % 5-7 % 44-46 % 71-76 % 21-22 10-11

Early Trade in Palm World trade in palm oil started at the turn of nineteenth century while palm kernel trade begun after 1832. After abolition of slave trade, palm oil has become principal cargo of slave ships. Industrial revolution in Europe has resulted into establishment of international trade in palm oil especially from West Africa. Sanitation and hygiene among Europeans created additional demand for soaps resulting in the demand for vegetable oils suitable for soap manufacture. The export of palm kernels also began in 1832 and by 1911 British West Africa alone exported 157 000 tons of which about 75 percent came from Nigeria. Nigeria was the largest exporter until 1934 when the country was surpassed by Malaysia. Africa led the world in production and export of palm oil throughout the first half of the 20th century, led by Nigeria and Zaire. By 1966, Malaysia and Indonesia surpassed Africas total palm oil production.

Sterilization in Large Pressure Vessel/Cages FFB Enters the Plant for Processing Stripping in Rotating Drum Stripper Extraction in Homogeneous Oil Mash

Processing A unique feature of the oil palm is that it produces two types of oil palm oil from the flesh of the fruit, and palm kernel oil from the seed or kernel. For every 10 tons of palm oil, about 1 tone of palm kernel oil is also obtained. Several processing operations are used to produce the finished palm oil that meets the users' requirements. The first step in processing is at the mill, where the crude palm oil is extracted from the fruit. The various steps in extraction are shown in the Flow Chart. Conversion of crude palm oil to refined oil involves removal of the products of hydrolysis and oxidation, colour and flavour. After refining, the oil may be separated (fractionated) into liquid and solid phases by thermo-mechanical means (controlled cooling, crystallization, and filtering), and the liquid fraction (olein) is used extensively as a liquid cooking oil in tropical climates, competing successfully with the more expensive groundnut, corn, and sunflower oils. Extraction of oil from the palm kernels is generally separate from palm oil extraction, and will often be carried out in mills that process other oilseeds (such as groundnuts, rapeseed, cottonseed, and copra). The stages in this process comprise grinding the kernels into small particles, heating (cooking), and extracting the oil using an oilseed expeller or petroleum-derived solvent. The oil then requires clarification in a filter press or by sedimentation. Extraction is a well-established industry, with large numbers of international manufacturers able to offer equipment that can process from 10 kg to several tonnes per hour. The crude palm oil may be further refined (second stage of processing) to get a wide range of palm products of specified quality. The partly

CPO

Purification in a Continuous Clarification Tank

Refining Process
Alkali Refining
Physical Refining

Degummi ng & Pre Bleaching

Deacidifati on & Deodorizat ion

RBD
Palmolein

Alkali Neutraliz ation

Earth Bleachi ng

Deodoriz ation

and wholly processed grades require little further treatment before use, offering end-user a saving in processing costs. Palm oil may also be fractionated, using simple crystallization and separation processes to obtain solid (stearin) and liquid (olein) fractions of various melting characteristics. The different properties of the fractions make them suitable for a variety of food and non-food products.
Biofuels and bioproducts Palm oil, like other vegetable oils, can be used to create biodiesel for internal combustion engines. Biodiesel has been promoted as a form of biomass that can be used as a renewable energy source to reduce net emissions of carbon dioxide into the atmosphere. Therefore, biodiesel is seen as a way to decrease the impact of the greenhouse effect and as a way of diversifying energy supplies to assist national energy security plans. By using all the biomass residues from palm oil processing for renewable energy, fuels and biodegradable products, both the energy balance and the greenhouse gas emissions balance for biodiesel from palm oil is improved. For each tonne of crude palm oil (CPO) produced from fresh fruit bunches, the following residues, which can all be used for the manufacture of biofuels, bioenergy and bioproducts, become available: around 6 tons of waste palm fronds, 1 ton of palm trunks, 5 tons of empty fruit bunches (EFB), 1 ton of press fiber (from the mesocarp of the fruit), half a ton of palm kernel endocarp, 250kg of palm kernel press cake, and 100 tons of palm oil mill effluent (POME). In short, a palm plantation has the potential to yield a very large amount of biomass that can be used for the production of renewable products. However, regardless of these new innovations, first generation biodiesel production from palm oil is still in demand globally and will continue to

increase. Palm oil is also a primary substitute for rapeseed oil in Europe, which too is experiencing high levels of demand for biodiesel purposes. Palm oil producers are investing heavily in the refineries needed for biodiesel. In Malaysia companies have been merging, buying others out and forming alliances in order to obtain the economies of scale needed to handle the high costs caused by increased feedstock prices. New refineries are being built across Asia and Europe. Supply Demand Scenario Global Scenario

Being a perennial crop, palm oil starts bearing fruits from 30 months after its planting and continues to yield till 20-30 years. Global Crude Palm Oil production has been increasing continuously from 1980-81. The production has increased manifold from 4.90 million tons in 1980-81 to 44.95 million tons in 2009-10.

Malaysia, worlds largest palm oil producer till 2003-04, has seen continsuous rise in its production. Its production has increased from 2.57 million tons in 1980-81 to 18.50 million tons in 2009-10. The major reasons attributed for enormous rise in production are consistent efforts taken by the government to cultivation palm plants, its multi-usages apart from cooking and recently its importance as bio-fuel.

Malaysia and Indonesia are the two largest Crude Palm Oil producers. Till 2003-04 Malaysia was the largest palm oil producing country in the world but from 2003-04 onwards Indonesia took over first position by surpassing Malaysia and maintaining first place since then till now. Above shown graph shows percent of palm oil production by Malaysia and Indonesia in total world production. Looking into above graph, percent contribution of Malaysia to world production declined marginally from 60% to 25% since 1980-81 till date whereas contribution of Indonesia rose to 45% from a mere 15% in the same period. Along with Malaysia, production in Indonesia also increased manifold since 1980-81. Recently, Indonesia has surpassed the Malaysia in production. Its production increased from a mere 0.75 million tons in 1980-81 to 20.75 million tons in 2009-10 registering a Compounded Annual Growth Rate of 12.80%. Recently, Indonesia has emerged as one of the biggest competitor to Malaysia in production of palm oil.

factor by dividing 1200 by the sum of average, this correction factor will be multiplied with monthly average price to get adjusted Seasonal Indices.

Malaysia is the largest palm oil exporter in the Asian continent followed by Indonesia. Since domestic consumption is less it earns large chunk of foreign exchange by exporting huge quantities of palm products. Major destination for Malaysian palm oil export is China having largest share of 43% followed by Indonesia (16%) and Pakistan (12%). It exports only 6% of total shipment to India. Indian Scenario India is one of the largest vegetable oil importers in the Asian continent followed by China. Annually India imports more than 5 million tons of different edible oils. Crude Palm Oil is the single largest commodity of Indias edible oil import basket. Import Seasonal Indices Method has been adopted to find out seasonality of CPO imports in India. The monthly import figure from November 2001 to June 2008 has been taken. Seasonal Indices are calculated by averaging monthly import data and correcting the total to 1200. Correcting the sum to 1200 will be done to give equal weightage to each month. After getting correction

By evaluating above graph, we can conclude that import of palm oil in India starts picking up from the month of March and reached peak in May and eases thereafter. The import once again starts picking from August and touches highest level in the month of October. Price Analysis Bursa Malaysian Derivatives (BMD) Exchange is considered as global benchmark market for palm oil pricing across the globe. Since palm oil is close substitute of soy oil, its pricing is largely influenced of price movement in latter on Chicago Board of Trade, worlds largest benchmark agri commodity exchange. On domestic front, pricing of palm oil depends upon FOB prices of Indonesia because large part of Indias palm oil import is from Indonesia, government policy of India and Indonesia, freight charges etc. Correlation between Crude Oil and Other edible oils Crude Palm Oil is having good correlation with correlation with Crude Oil prices. In the recent past, technological inventions showed that CPO can be used as an alternate to crude oil in the form of bio-fuel.

From the correlation matrix, it can be inferred that domestic CPO prices at Kandla has direct correlation with global market. It is having more than 90% correlation with BMD CPO futures and CBOT Soy Oil futures. The correlation of Kandla ready CPO price with Indonesia FOB price is 89%. BMD CPO futures are having good correlation of 97% with CBOT Soy Oil and 90% with NYMEX Crude Oil prices. Effect of movement in Indonesia FOB price is largely seen in C&F prices in Mumbai wit a close correlation of 99.8% followed by BMD prices. Since India imports huge quantities of palm oil from Indonesia, price movement in latter has a greater effect on Indian market rather than that of Malaysia. C&F Soy Soy Crude Kandla Mumbai Indonesia BMD Oil bean Oil Kandla 1.000 C&F Mumbai 0.896 1.000 Indonesia 0.893 0.998 1.000 BMD 0.911 0.991 0.991 1.000 Soy Oil 0.901 0.975 0.972 0.979 1.000 Soybean 0.880 0.947 0.943 0.961 0.988 1.000 Crude Oil 0.762 0.906 0.902 0.906 0.944 0.944 1.000 Price Outlook Crude Palm Oil futures prices have fallen sharply in domestic as well as international market in response to weak CBOT market in recent past. Sluggish demand for Crude Palm Oil in global market led to sharp fall in prices. Anticipation of good crop harvest also added bearish sentiment to the market. Moreover, fall in crude oil prices dampened the demand of edible oil as an alternate energy source. Prices are expected continue its downward trend in near term as the new harvesting has commenced in most of the countries.

Factors to Watch Out For: The new crushing season in Malaysia has begun and progressing well It is expected that demand for palm oil will fall in near term reacting to crude oil prices Arrivals of freshly harvesting oilseeds in most of the countries will exert pressure on the market It is expected that CPO import likely to remain higher in coming days as the international price is at comfortable level Lower customs duty on edible oil, which is at 0% is likely to increase the import Technical Update:

Supports: 336, 325 Resistances: 356, 367

Outlook: Market is witnessing a stiff resistance at 367 levels sustain below the same expected to trade down. Only a significant break above 367 may lead the prices to trade higher. Conversely, on the lower side support is near 325 levels on break below likely to extend its drop further down. We expect prices to trade lower in the near term.

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