The European Union's deforestation law is unlikely to have a meaningful impact on demand for Southeast Asian palm oil as the surplus is shrinking amid rising consumption from developing countries, a leading industry analyst said on Monday.
The EU in December agreed a deforestation law that requires companies to produce a due diligence statement and provide "verifiable" information that commodities, including oil palm, were not grown on land deforested after 2020, or risk hefty fines.
The regulation has been welcomed by environmentalists as an important step to protect forests, but palm oil producers have accused the EU of blocking market access for the edible oil.
James Fry, chairman of commodities consultancy LMC International, told Reuters the regulation could reduce import demand in the EU, but the surplus will be absorbed by buyers such as India, Bangladesh, Pakistan and African countries.
"There is not enough palm to meet all the markets, and India would be very happy if the EU's deforestation law meant there was more palm oil for India," Fry said in an interview.
The European Union is the world's third largest palm oil importer with a shrinking market of less than 10%, while Asian countries such as India and China account for more than 40% of global imports.
Output of the tropical oil has been rising in top producer Indonesia, but the surplus has been largely absorbed locally because of its ambitious biodiesel mandate, he said.
Indonesia in January launched its biodiesel programme with a mandatory 35% palm oil content, expanding from the previous 30%, aimed at reducing reliance on imported diesel and propping up demand.
In the second biggest producer Malaysia, where production last year was 18.45 million tonnes, Fry said output had started to plateau because replanting of unproductive oil palm trees had slowed down.
"In Malaysia, the challenge will be whether production will exceed over 20 million tonnes," he said.
Palm oil exports from the top two producing countries peaked in 2019 and are unlikely to get close to that again, Fry said.
