Palm oil is an edible vegetable oil produced from the flesh of the fruit of the oil palm tree. The oil palm tree is a tropical palm tree that is a native of the west coast of Africa and is different from the coconut palm tree. The fruit of the oil palm tree is reddish, about the size of a large plum, and grows in large bunches. A single seed, the palm kernel, is contained in each fruit. Oil is extracted from both the pulp of the fruit (becoming palm oil) and the kernel (palm kernel oil), with 1 metric ton of palm kernel oil obtained for every 10 metric tons of palm oil.

Palm oil is commercially used in soap, ointments, cosmetics, detergents, and machinery lubricants. It is also used worldwide as cooking oil, shortening, and margarine. Palm kernel oil is a lighter oil and is used exclusively for food use. Crude palm oil and crude palm kernel oil are traded on the Kuala Lumpur Commodity Exchange (KLSE).

Prices – Palm oil prices in September 2003 were 32.25 cents/pound, slightly above the running average for calendar 2003 of 31.76 cents. That was sharply higher than 23.31 cents in 2002 and 15.73 cents in 2001.

Supply – World production of palm oil in 2003/4 rose by 3% to 28.13 million metric tons from 27.21 million in 2002/3. Palm oil is the world’s second largest vegetable oil crop, running only slightly below soybean oil production of 31.98 million metric tons in 2003/4. The large production year in 2003/4 for palm oil outpaced demand and that led to an 11% increase in stocks to 2.31 million metric tons from 2.09 million in 2002/3, although that is still a relatively tight stocks level compared to the 1999 to 2002 period.

The world’s largest producer of palm oil by far is Malaysia with 48% of world production and Indonesia is the second largest producer with 36% of world production. Together they account for 84% of world production. Malaysian production in 2002/3 rose by 6% to 12.520 million metric tons from 11.856 million in 2001/2. Indonesian production in 2002/3 rose by 8% to 9.480 million metric tons from 8.790 million in 2001/2.

Trade – World palm oil exports in 2002/3 rose by 6.5% to 20.220 million metric tons. The world’s largest exporters are Malaysia with a 58% market share of world exports, followed by Indonesia with a 32% share. The world’s largest importers are India with a 16% share of world imports, followed by Germany (9%) and China (8%).