Palm oil faces rising protectionism and national pressures

India’s protectionist policies to double its import duties for CPO from 7.5% to 15%


Growing pressures, rising protectionism and slapping of higher duties will drag Malaysia’s palm oil exports and dent the prospect of a fast price turnaround for the edible oil.

India’s protectionist policies saw the world’s largest palm oil importer to double import duties for crude palm oil (CPO) from 7.5% to 15%. The world’s second most populous nation also raised import duties for edible oils like soybean and sunflower from 12.5% to 17.5% to support local oilseed farmers.

The European Union’s (EU) ongoing objection against the commodity continues to be a black mark for the industry to boost export to the world’s second-largest CPO market.

The European Parliament’s decision to ban the use of vegetable oil in biofuels by 2020 has thrown another spanner into the prospect of the commodity making further inroads into the 28-nation bloc.

Analysts expect India and Europe’s actions would lead to softer demands for Malaysia’s largest commodity export and oil palm firms will face a challenging period in the short term.

According to Bloomberg’s data, the top 10 companies on the Bursa Malaysia Plantation Index posted earnings drop from 41.3% to 90.1% year-on- year for the recent quarter.

On a quarter-on-quarter basis, only three of the 10 companies reported higher returns — IOI Corp Bhd, Felda Global Ventures Holdings Bhd and United Plantations Bhd.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew said structural issues will plague the industry for a while as demand for palm oil dwindles in the near term.

“It is somewhat a mixed bag for the plantation sector. The demand prospect is fading because of structural issues that are facing the export market — regulation in India, sentiments in Europe and lesser imports from China.

“It is a lacklustre picture that is unfolding for palm oil this year,” Pong told The Malaysian Reserve (TMR).

Data from the Malaysian Palm Oil Board (MPOB) showed that CPO exports to India have fallen nearly 30% to 1.5 million tonnes between January and August this year, compared to 2.1 million tonnes recorded over the same period last year.

The EU, the second-largest export destination for Malaysia’s palm oil after India, posted a slight decline. Preference for soybean had caused exports to China to decrease by 3.6% to 1.08 million tonnes from 1.12 million tonnes.

But total palm oil exports rose 2% to 10.7 million tonnes from 10.5 million tonnes for the period.

Malaysia is the world’s second-largest producer of palm oil and accounts for 29% of global palm oil production and 37% of world exports. Oil palm plantations which cover over 73% or 5.7 million hectares of agricultural land in the country, contributed RM38.5 billion to the nation’s economy.

But Pong said palm oil continues to be the preferred oil in many countries with a lower income level due to its price competitiveness compared to other edible oil.

“On the long term, the outlook remains optimistic. Apart from being cheap, the rise in global population will contribute to the higher demand for palm oil.

Pong also expects improvements in CPO prices in the coming months would provide a bright “spark” for plantation stocks.

IJM Plantations Bhd CFO and ED Purushothaman Kumaran said forthcoming festive demands in India and China would erase most of the existing palm oil stocks.

“Once stocks are cleared, about 20% to 30% will be replenished so the present price will hold if not improve,” he told TMR.

RHB Investment Bank Bhd deputy director of futures and commodities David Lo Tuck Wye added that CPO prices could hit RM3,000 by year-end, driven by higher demand from October onwards.

Lo said CPO prices will unlikely return to the RM4,000 level reached in 2008, but the existing price of around RM2,800 is considered firm, as it fell on the upper side of the RM2,000 to RM3,000 price range.