Local palm oil inventory currently hovers below 3m tonnes, the impact on global palm oil output would be minimal
by ALIFAH ZAINUDDIN / pic by TMR FILE
CHINA’S plan to buy an additional 1.9 million tonnes of palm oil from Malaysia over the next five years may not be enough to boost crude palm oil (CPO) prices which have been dragged by high stockpiles.
Industry consultant MR Chandran said while the deal is deemed positive, an extra purchase of 400,000 tonnes per year by Beijing is unlikely to have an impact on high global inventory levels and CPO prices.
“What is not known is if China would increase its domestic consumption of palm oil or just buy the additional quantum from Malaysia at the expense of Indonesia. Indonesia is currently the larger exporter of palm oil to China (compared to Malaysia),” he told The Malaysian Reserve recently.
China is Malaysia’s third-largest palm oil buyer, with imports of up to 1.9 million tonnes in 2018.
However, the biggest portion of palm oil imports in the Chinese market comes from Indonesia, nearly four million tonnes were brought in last year.
Chandran said China is expected to cut back on Indonesian purchases in favour of Malaysia, given that palm oil is not a direct consumer product, but used in restaurants for food and feed industries.
While this will likely reduce local stockpile levels further — as the Malaysian palm oil inventory currently hovers below three million tonnes — the impact on global palm oil output would be minimal.
This year, the production is expected to rise up to 75.26 million tonnes from 72.48 million tonnes in 2018.
Many experts believe that the bumper harvest will continue to impede the recovery of palm oil prices despite a higher overall demand.
Chandran estimated CPO price to average around RM2,300 per metric tonne for the year, with the five-year average at RM2,400 if crude oil maintains at the US$60 (RM248.20) range per barrel and the moratorium on further greenfield development in Indonesia and Malaysia are strongly implemented.
Last week, Prime Minister Tun Dr Mahathir Mohamad and China’s Premier Li Keqiang witnessed the signing of a memorandum of understanding (MoU) between the two countries.
The MoU would see an additional supply of about 1.9 million tonnes of palm oil to China over a five-year period, starting from this year.
The volume is valued at RM4.56 billion, based on an average price of US$600 per tonne.
This is in addition to four purchase contracts signed in March for the export of 1.62 million tonnes of Malaysian palm oil to China worth about US$891 million in total.
Most of the local plantation counters have reacted positively to the news, with six of the top 10 counters recording gains up to nearly 2% last Friday.
The gainers were Sime Darby Plantation Bhd, Kuala Lumpur Kepong Bhd, Genting Plantations Bhd, United Plantations Bhd, Boustead Plantations Bhd and Sarawak Oil Palms Bhd.