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Tuesday, 26 July 2016 11:26

Palm oil crisis looms as sustainable certified supplies drop following suspensions

The sustainable palm kernel oil market is experiencing a period of volatility due to uncertainty caused by two large producers of palm oil losing their Roundtable on Sustainable Palm Oil (RSPO) certification.

palm oil wagon loadEarlier this year, IOI Corporation's certification was suspended by the RSPO due to allegations of deforestation and other misconduct by its Indonesian subsidiaries, including alleged non-compliance with RSPO's principles and certification systems.

At around the same time, the Felda Group requested an immediate withdrawal of its RSPO certification for its 58 mills located throughout Malaysia, due to sustainability issues in its supply chain.

Between them, the two producers supplied around 21% (639,000 tonnes) of the total available volume (3.07 million tonnes) of RSPO-certified sustainable palm kernel. Felda plans to "progressively recertify" its mills within three years, and IOI says it is working with its stakeholders and RSPO to voluntarily adopt the more stringent certification system starting from the end of this year.

Due to the complexity in the palm kernel supply chain, RSPO certified segregated palm kernel oil is still hard to source. Consequently, the drop in supply will have a severe impact on buyers seeking physical palm kernel oil, either Segregated or Mass Balance.

One grower that has benefited from the overall drop in certified palm supplies is Kuala Lumpur Kepong Bhd (KLK) in Malaysia. Previously, about 30% of its product was sold with a CSPO premium, but that figure has now risen to almost 50%.

palm oil logo2On the GreenPalm market, certificate prices are increasing in response to the crisis. Indications are of a continuing squeeze on certified physical supplies, particularly palm kernel oil. However, buyers still have the option to support certified palm and palm kernel oil production via GreenPalm for their 2016 sustainable claims.

Bob Norman, General Manager at GreenPalm, said: "This is good news for sellers of GreenPalm certificates, who can command a higher premium as competition for certificates intensifies. But it's less promising for buyers committed to sourcing physical certified material, or for those who do not act quickly enough to beat the price increases."

GreenPalm membership includes manufacturers, retailers and certified growers from across the world. GreenPalm publishes the latest information regarding its members and growers, as well as real-time data about certificates traded and market data for all to see on its website at