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Saudi Arabia: Palm Oil Market – Trends and Updates

Background

The Kingdom of Saudi Arabia has been experiencing an incredible transformation in the span of a single generation. It aims to progress at a more advanced pace in the process of implementing comprehensive structural reforms by executing strategies, programmes, and projects that drive sustainable economic growth and raise the quality of life in the Kingdom, in accordance with the Kingdom’s Vision 2030. It has propelled the Kingdom’s economy to greater heights without solely depending on the petroleum industry. 

Previously, the Kingdom was mostly known as the Hajj and Umrah destination for Muslims, but it has now become one of the most popular tourist attractions in the Middle East for non-Muslim visitors. Domestic tourism too has become a popular pastime among Saudi residents. The flourishing of the tourism industry has indirectly created additional demand for oils and fats in the Kingdom. Malaysian palm oil export to Saudi Arabia has shown a significant increase in 2022, with the figure crossing the half a million MT mark.

Oils and Fats Scenario

Table 1: Saudi Arabia – S&D Balance (‘000 MT)          

  2017 2018 2019 2020 2021 2022 (E)
Production 111.8 93.0 143.0 115.0 107.0 117.3
Import 806.9 906.0 939.7 906.0 886.0 1,047.7
Consumption 870.6 911.3 913.7 908.0 887.0 907.0

Source: Oil World

Saudi Arabia is the largest nation in the Gulf Cooperation Council (GCC) region with a population of 36.4 million (2022) and a per capita consumption of oils and fats of 25.6kg. In 2022, the country recorded an increase in imports and consumption. Even though Saudi Arabia has developed its agricultural activities, particularly in the Al-Qassim region, it is still dependent on imports due to insufficiency. The consistent population growth at 1.48% and the rapid development and transformation of the Kingdom have enticed the demand for oils and fats in the country. The import of palm oil has shown an improvement in 2022 as compared to 2021 by passing the one million mark, as the country registered an increase of 161,700 MT to 1,047,700 MT.

Table 2: Saudi Arabia – Oils and Fats Imports (‘000 MT)

  2017 2018 2019 2020 2021 2022E
Butterfat 41.3 45.3 37.3 48.0 44.0 45.6
Coconut oil 2.7 3.5 3.3 4.0 5.0 5.2
Corn oil 84.2 69.1 72.1 58.0 62.0 52.4
Cotton oil 0.1 0.0 4.1 2.0 2.0 3.4
Linseed oil 0.3 0.7 0.7 1.0 2.0 2.1
Olive oil 23.9 35.6 33.3 39.0 36.0 41.8
Palm kernel oil 27.7 46.3 57.4 33.0 11.0 21.1
Palm oil 484.3 535.0 586.1 561.0 575.0 758.0
Rapeseed oil 3.2 11.6 4.4 6.0 6.0 6.2
Soybean oil 11.4 15.2 11.1 9.0 9.0 7.8
Sunflower oil 123.9 140.2 126.4 142.0 131.0 101.0
Tallow & Grease 3.2 3.5 3.5 3.0 3.0 3.0
 Total 806.2 906.0 939.7 908.0 886.0 1,047.7

  Source: Oil World & MPOC KSA estimates

Palm oil is the leading edible oil imported into the Kingdom, which holds 72.4% of the total oil import. It is primarily used in the food industry and HORECA sectors. Most of the fast-food outlets in the Kingdom use palm oil as their main frying oil. Its versatility, continuous supply, and competitive price are the main reasons behind the high demand for palm oil in the Kingdom’s food industry. Sunflower oil meanwhile is second behind palm oil and has a strong presence in the retail sector. Sunflower base cooking oil is the most popular in the Kingdom and dominates 70% of the market.

Malaysian Palm Oil in Saudi Arabia

Table 3: Malaysian vs Indonesian Palm Oil (‘000 MT)

  2017 2018 2019 2020 2021 2022
Malaysia 354.3 400.0 150.0 343.8 285.7 511.8
Indonesia 59.8 69.6 345.0 107.5 238.0 224.0
Malaysia’s Share (%) 73.2 74.8 25.6 61% 50% 67.50%

Source: Oil World

The Kingdom of Saudi Arabia is one of the major importers of Malaysian palm oil (MPO) in the Middle East. MPO has a strong presence in the Kingdom with an average of over 400,000 MT per annum. However, for the past few years, MPO has been facing stiff competition from Indonesian palm oil (IPO) due to its competitive pricing. Table 3 above shows that beginning in 2019, IPO has managed to gain some of the palm oil market share in the Kingdom. For the following three years, MPO has managed to maintain its position as the preferred palm oil supply in the Kingdom, particularly in 2022, when MPO export to the Kingdom exceeded the 500,000 MT mark, at 511,800 MT.

The increase in MPO demand was due to Indonesia’s move to introduce export measures on palm oil products in April 2022 amid concerns about cooking oil prices spiralling out of control. A brief ban on exports of edible oil from Indonesia shook markets and exacerbated existing global supply concerns, but it also led to a ballooning domestic inventory. Demand for MPO continued even after Indonesia lifted its export ban.

Palm Oil Demand in Saudi Arabia

In 2022, palm oil has enjoyed a splendid year in the Kingdom of Saudi Arabia. The import of palm oil increased by 31% to 758,000 MT (Table 2) in 2022. The increase has also pushed the total import of oils and fats into the country to more than one million MT.  The increase in demand for palm oil in Saudi Arabia is due to these factors:

  • The development in the tourism sector has led and will continue to lead to the increase in the number of restaurants and hotels in the kingdom. Even local residents prefer to eat out with their families rather than at home. The Consumer Price Index (CPI) (inflation rate) during Q3 of FY 2022 recorded an increase of 2.9% on an annual basis, as the restaurant and hotel sector recorded during Q3 of FY 2022 the highest increase among the main sectors in the general price index by 7.1%, followed by the education section by 5.7%, then by similar rates for the entertainment and culture section, and the food and beverage sections at rates of 4.2% and 4.1% respectively. The Kingdom has been betting big on diversifying its economy. With the rise of an entrepreneurial generation, the government aims to attract 100 million visitors annually through the food and beverage sector by 2030.
  • The influx of pilgrims who perform Umrah in Makkah and Madinah may have a direct effect on the demand for palm oil in the Kingdom. Saudi Arabia’s Ministry of Hajj and Umrah informed that 4 million Umrah visas have been issued for pilgrims coming from all over the world since the start of the 2022 Umrah season.
  • The sunflower oil shortage in the market has prompted local importers to turn to palm oil in order to fill the gap. Most of the major oils and fats players in the Kingdom and GCC countries have started selling blended cooking oils with high percentages of palm olein.
  • In order to overcome the issue of high freight costs, the local importers need to import in big quantities into the region before it is exported to other markets such as Africa. There is an increase in demand from neighbouring countries such as Yemen, which favours importing from Saudi Arabia and UAE rather than importing directly from Malaysia, due to high freight costs.

Conclusion

The Saudi economy has achieved tangible positive improvements on the economic and fiscal fronts during FY 2022, exceeding previous domestic and international expectations for the performance of the Kingdom’s economy. The positive economic performance and the impact of fiscal reforms that were implemented since the launch of Vision 2030 is reflected in the financial indicators. This positive development is expected to continue all the way through to 2030 and it is expected to increase the domestic households’ disposable income. With a higher disposable income or purchasing power, domestic consumers will be encouraged to spend more on the HORECA and tourism industry. In addition, the rapid development of the Kingdom’s tourism sector and the Hajj and Umrah sector’s recovery will attract millions of foreign visitors to the Kingdom.

These developments are expected to have a significant impact on the palm oil demand in the Kingdom. With the expansion of the HORECA sector, the demand for palm oil is expected to grow due to its versatility, availability, and competitive price against other edible oils.

Malaysian palm oil companies are encouraged to start establishing good contacts with local edible oil companies in order to capture this opportunity in the Kingdom. It is important for MPO to maintain its position as the most preferred palm oil in the Kingdom, and better still, to capture a bigger market share from its competitors. MPOC KSA in Jeddah will continue to organise relevant programmes with the main objective of encouraging more trade activities between the Kingdom and Malaysia.

Prepared by: Muhammad Kharibi & Rana Al Madani 

*Disclaimer: This document has been prepared based on information from sources believed to be reliable but we do not make any representations as to its accuracy. This document is for information only and opinion expressed may be subject to change without notice and we will not accept any responsibility and shall not be held responsible for any loss or damage arising from or in respect of any use or misuse or reliance on the contents. We reserve our right to delete or edit any information on this site at any time at our absolute discretion without giving any prior notice.

Source:

  1. Oil World
  2. MPOB
  3. Saudi Gazette
  4. Budget Statement Fiscal Year 2023
  5. Arab News
  6. Al Jazeera