Speculation to boycott Malaysia palm oil will boost traders’ margin

Indian importers want their govt to impose higher import duty on refined palm oil

by MARK RAO/ pic by AFP

REPORTS that India should boycott Malaysian palm oil could likely be sensationalised to benefit the former’s traders who will enjoy higher margins from any import restrictions or a higher levy on refined palm oil.

An industry insider said there is a “speculative” intent behind the news that India plans to restrict the purchase of Malaysian palm oil and the local press have sensationalised the matter.

“India buys a lot of crude palm oil, while Malaysia exports mostly refined palm oil. Indian importers, primarily refineries always want their government to impose higher import duty on refined palm oil.

“This way they would have better margins to process imported crude palm oil,” the source told The Malaysian Reserve.

India is the world’s largest importer of edible oils and was the largest buyer of Malaysian palm oil in the first nine months of 2019. The country imported 3.91 million tonnes or 27.9% of Malaysia’s total palm oil exports over that period.

Valued at RM31.05 billion, Malaysia exported a total of 14.02 million tonnes of palm oil over the nine-month period, of which 79.5% was processed palm oil.

Crude palm oil (CPO) only accounted for 20.5% or 2.87 million tonnes of the country’s total exports for the January-September period.

India is the second-most populated country in the world but there is a concern that it will restrict its imports of several Malaysian goods, including palm oil following Prime Minister Tun Dr Mahathir Mohamad’s comment about Kashmir during the recent United Nation General Assembly.

New Delhi had not issued an official statement over the proposed boycott. Malaysia and India generally have a strong relationship with the former being homes to thousands of Indian workers. Malaysia is rated 20th in remittance value to India by its citizens.

Bernama yesterday reported that at least 500,000 people from Tamil Nadu are working in the information technology sector and restaurants in Malaysia.

According to the World Bank, India tops the global list of remittance recipients, with US$79 billion (RM331 billion) last year, Bernama reported.

Malaysian Indians continue to have strong family ties with their relatives in India.

But the Kuala Lumpur-New Delhi relationship became thorny over controversial preacher Dr Zakir Naik.

Last week, Primary Industries Minister Teresa Kok urged Malaysian businesses to buy more raw sugar and beef from India.

This was in view of addressing the trade imbalance between the two countries which sees Malaysia selling more goods to India.

It was reported that several Indian palm oil traders had turned to Indonesia to source for their palm oil imports. However, there is no confirmation over the reports.

The source said a large majority of local planters sell to local refineries. But he warned that any drop in demand from India would affect the global palm commodity prices. Malaysian plantation firms continue to face challenging business prospects on falling CPO prices and industry uncertainties with the European Union’s impending ban on palm oil use in biofuels.

For September this year, CPO prices averaged at RM2,097 per tonne — slightly weaker than the RM2,177.50 average reported in the corresponding period in 2018.

While CPO prices could rebound in anticipation of declining global palm oil supply, industry uncertainties will continue to weigh on investor sentiment.