Boycott of the country’s palm oil by Indian traders will likely not be prolonged, as there are not enough supplies from top producer Indonesia to cover the shortfall
By SULHI KHALID / Pic By MUHD AMIN NAHARUL
MALAYSIA’S exports are expected to decline by 0.6% in September from 0.8% recorded in August this year as the latest trade spat with India could contribute further downside risks to the nation’s export prospects.
RAM Holdings Bhd said in a statement that India has emerged as one of the main contributors to Malaysia’s export growth this year as goods heading to India increased by 7.1% in the first eight months of 2019 (8M19), against the overall 0.4% contraction in exports.
Malaysia’s imports, on the other hand, could post a 0.4% contraction, albeit still a notable recovery after the steep 12.5% dive in August, the rating agency said. “This will bring Malaysia’s overall trade surplus to RM15.3 billion at month-end. The lacklustre showing is underlined by subdued global trade and industrial performance in the same month,” it said in a press release last Friday.
RAM’s head of research Kristina Fong (picture) said India was the second-biggest contributor to Malaysia’s export growth in 8M19, with a positive contribution of 0.3 percentage point (ppt) and marginally behind the US by 0.4 ppt.
She highlighted that although India only made up 3.6% of Malaysia’s total exports, the strong growth has helped offset some of the deceleration in overall external demand this year.
However, according to RAM, Malaysia’s current healthy export momentum to India may be slightly dampened if there are restrictions against the import of the country’s palm oil-related products.
“Exports of palm oil to India jumped almost 70% in 8M19, with a positive contribution of 11 ppts.
Last week, Minister of Economic Affairs Datuk Seri Mohamed Azmin Ali stressed a boycott of the country’s palm oil by Indian traders will likely not be prolonged, as there are not enough supplies from top producer Indonesia to cover the shortfall.
The India-Malaysia trade spat started when Malaysia’s Prime Minister Tun Dr Mahathir Mohamad criticised India’s policy in Kashmir, triggering a backlash which led to an influential processors group in Mumbai calling on its members to avoid buying Malaysian palm oil.
Malaysia is the world’s second-largest producer of crude palm oil (CPO) after Indonesia. Both Malaysia and Indonesia account for about 85% of the world’s CPO production.
RAM said Malaysia’s palm oil-related sector is also particularly vulnerable to trade measures by India given the significance of the latter as an export destination.
“Palm oil sector and the metals industry stand to lose the most as exports destined for India comprised 10.4% and 10.8% respectively,” it said.