Palm oil producers call for ‘aggressive’ approach to combat discrimination

There are concerns policies and regulations in some countries unfairly target the palm oil industry

by DASHVEENJIT KAUR/ pic by BLOOMBERG

Kok urges palm oil producing countries to work together and stand united to defend the industry without compromising sustainability goals (Pic by Arif Kartono)

THE Council of Palm Oil Producing Countries (CPOPC) wants to fight discriminatory measures against palm oil through an “aggressive joint counter-campaign”.

Primary Industries Minister Teresa Kok said there is urgency for a strengthened collaboration among palm oil producers to address emerging issues in the industry.

She also expressed concerns about discriminatory policies and regulations in some countries that unfairly target the palm oil industry.

“We are calling for unity and solidarity among palm oil producing countries to fight the discriminatory measures against the industry through an aggressive joint counter-campaign with concrete and implementable actions,” she said after the second Ministerial Meeting of Palm Oil Producing Countries (MMPOPC) in Kuala Lumpur yesterday.

The council meeting was attended by representatives from Malaysia, Indonesia, Colombia, Thailand, Nigeria, Papua New Guinea, Ghana, Honduras and Brazil.

Kok urged these countries to work together and stand united to defend the palm oil industry without compromising sustainability goals.

There are concerns policies and regulations in some countries unfairly target the palm oil industry Palm oil producers call for ‘aggressive’ approach to combat discrimination “Indonesia and Malaysia will coordinate a fight against restrictive measures on palm oil through the World Trade Organisation (WTO),” she added.

She noted that the meeting also recommended some other follow-up actions, including encouraging palm oil producing countries to collaborate in developing strategies to get palm oil price to a remunerative level, particularly for smallholders.

In addition, MMPOPC also recommended a continued effort to promote and expand biofuel consumption to absorb more crude palm oil (CPO) in the global market.

This includes Indonesia’s trial implementation of the B30 programme in December and Malaysia’s implementation of the B20 biodiesel programme in stages beginning next year.

“The meeting also recommended cooperation on sustainable management of palm oil including through development and promotion of relevant certification of sustainability with an action plan.

“Besides that, we will encourage other palm oil producing countries to join CPOPC,” she said, adding that Nigeria, Papua New Guinea and Honduras have shown interest in joining the council.

On a related development, Kok highlighted that Malaysia and Indonesia are looking to unify national sustainability certification standards of the Indonesia Sustainable Palm Oil and Malaysia Sustainable Palm Oil.

In the first 10 months of this year, palm oil shipment to over 150 countries totalled to RM53.2b

Performances at Home

Palm oil is crucial for the Malaysian economy as it accounted for 2.8% of Malaysia’s GDP last year and 4.5% of total exports.

According to Malaysian Palm Oil Board’s (MPOB) data, last year’s palm oil exports amounted to RM65.41 billion.

In the first 10 months of this year, palm oil shipment to over 150 countries totalled to RM53.23 billion.

MIDF Research analyst Martin Foo Chuan Loong in a report yesterday said the country’s palm oil inventory in October 2019 fell by 14.4% year-on-year (YoY) to 2.3 million per metric tonne (MT), a level last seen in July 2019.

Foo said it was mainly attributable to the lower than anticipated output of 1.8 million/ MT which translates into a decline of 8.6% YoY amid the typical seasonal higher production period and a steady export demand of +4% YoY to 1.6 million/MT.

“The stockpile level also came in below Bloomberg and Reuters’ expectations by 7.6% and 6.7% respectively.

“We also observed the YoY drop in inventory was largely due to a high base effect seen in the fourth quarter of 2018 (4Q18). Should the fall in production signal the end of the peak cycle, we are of the view that inventory may trend lower in coming months given the expectation of steady export demand growth,” he added.

Foo also highlighted that on a YoY basis, export in October this year increased by +4% to circa 1.6 million/MT.

This came in above Bloomberg and Reuters’ expectations of +3.9% and +3% respectively.

“We think the higher than expected export demand was primarily due to the purchases from India, China and the European Union (EU). We are of the view that the increase in palm oil imports by China was primarily due to its low vegetable oil stocks amid the US-China trade war and the African Swine Fever.

“The lower supply of soybean and weaker soy-based feed meal demand may have tilted the favour to palm oil imports as an alternative as both are close substitutes. As such, we have observed a rise in China’s October import of palm oil by +26% YoY. We opine that the rise in the EU market demand by +19.6% YoY to 200,000/MT in October continues to be used for larger biodiesel consumption,” he added.

However, Foo noted that there is a weakening demand from India as the Indian government raised additional tariff rate on Malaysia’s refined palm oil on Sept 4 from 5% to 50%.

This is predicated on the fact that the purchases might be shifted towards Indonesian palm oil which has a cheaper pricing than Malaysian palm oil.

The underperformance from the region could also be due to the halting of purchases by some Indian buyers in fear of a trade ban on Malaysian palm oil over the Kashmir issue as the Mumbai-based Solvent Extractors’ Association of India has called for a ban, Foo reiterated.

“This was manifested through a sharp decline of -29.2% month-on-month (MoM) of export to India. However, on a year-to-date (YTD) basis, the export demand growth remains robust at +14.1% YoY, underpinned mainly by India due to previous preferential tariff trade agreement and China’s larger vegetable oil demand.

Market watchers say the recovery of the CPO price in the coming months could possibly be a tailwind

“Moving forward, we think that export demand will largely remain stable in the coming months. We expect strengthening demand from China for restocking activities for the major Chinese New Year festival in January 2020 will help to partially offset the expected decline in exports from India,” he added.

Analysts have also been positive on the CPO price, as on a YTD basis, the average CPO price is still hovering slightly above the RM2,000/MT level.

In October, the average CPO price recovered to above RM2,200/MT, representing an increase of +13.1% YoY, coming from a low base effect due to low CPO prices in 4Q18.

This is premised on the expectation that inventory will continue to trend downward amid weaker production levelling a peak cycle and a continued stable export demand.

Market watchers said the recovery of the CPO price in the coming months could possibly be a tailwind.

Maybank Kim Eng Research senior analyst Ong Chee Ting, in his notes to investors, stated that MPOB’s October stockpile unexpectedly declined to 2.35 million tonnes on lower than expected production and better than expected exports.

Ong highlighted Malaysia’s palm oil stock-to-usage ratio, for the past couple of months, had fallen from 12% to 9.9%. Therefore, it was not surprising to see that palm oil futures had risen from RM2,137 to RM2,496 per tonne.

Last Friday, the benchmark palm oil price settled at RM2,568 a tonne, still up about 32.6% from its 2019 low of RM1,937 in July.