Marginal decline likely in palm oil demand

The crisis in India, which is Malaysia’s top palm oil buyer, could lead to a marginal decline in its import volume


DEMAND for palm oil is expected to dwindle from May onwards as major buyer India grapples to contain the spread of Covid-19 which could impact domestic consumption.

India Prime Minister Narendra Modi has been called to impose a nationwide lockdown as the country has been overwhelmed with the coronavirus outbreak, with the healthcare service at breakdown levels.

An industry analyst said the crisis in India, which is Malaysia’s top palm oil buyer, could lead to a marginal decline in its import volume starting this month as the latest figure by the authority revealed the country has done much of its restocking activities in April.

According to data by the Malaysian Palm Oil Board last week, India imported 354,555 tonnes of palm oil in April, a 53% increase over 232,217 tonnes imported in March.

“The virus spread will obviously have an impact on the demand for palm oil. The decline had not shown in April’s export volume as Indian buyers have been increasing their restocking activities for the festive celebration.

“We may see a reduction in demand after Ramadhan and Aidilfitri, but it will depend on the situation as palm oil is an essential item that could not be cut off like other imported products,” she told The Malaysian Reserve.

Despite the aspect of declining demand, palm oil is currently being priced at a more competitive rate compared to other edible oil such as soybean oil, which will balance the anticipated low demand.

Soybean oil has been traded relatively higher compared to crude palm oil (CPO), supported by the surging global vegetable oils market.

“The other factor that we have to consider is the premium level of soybean oil against CPO. At the moment, soybean oil is still at a premium to CPO as there has been an increase to a high level which is comparable to the previous years.

“Thus, CPO is cheaper and affordable for India, and we know that India is a very price-sensitive country,” she said.

On the macro level of overall trade volume, the pandemic crisis in India is not seen as detrimental to Malaysia’s trade with the country due to the relatively small volume, said Sunway University Business School economics Prof Dr Yeah Kim Leng.

Malaysia’s trade with India was recorded at US$10.77 billion (RM44.5 billion) in 2016, a 4.9% decrease from US$12.02 billion in the previous year.

Exports in the year were valued at US$7.13 billion, while imports stood at US$3.64 billion.

“Malaysia’s export and import volumes are relatively small, so the impact of a major downturn in the Covid-19 escalation would not be that severe.

“Our exports to other major partners, such as China, Europe and other Asian countries, still remain and these economies are generally showing a robust recovery,” he said.

Yeah said Malaysia’s export volume is expected to sustain at a high single-digit growth while increasing to double-digit growth from May onwards, supported by the low base effect.

“In Malaysia, nearly half of the Covid-19 infections are workplace-related. So hopefully, our factories and production are able to take measures to contain any spread of the coronavirus.

“I believe Malaysia could afford another total lockdown, but it will have to be in short duration and the government has to prepare for an increase in budget deficit because we need to roll out further financial support programmes, especially for the small and medium businesses.

“If factories are forced to shut down, then of course, a much larger fiscal package would be needed and that would tilt Malaysia into a wider deficit as well as an increase in debt level,” he said.