Palm oil industry rejoices as economies reopen
KUALA LUMPUR — After a dramatic slowdown in the first quarter due to the coronavirus lockdown imposed by countries across the globe, the palm oil bulls are on the move again and ready to charge the market in the second quarter onwards.
As businesses throughout the world are allowed to resume operations again, this would only mean more demand for the edible and versatile oil.
Palm oil players also welcomed tax exemption provided under the National Economic Recovery Plan (PENJANA) that could help to manage the country’s current stock level of 2.03 million tonnes as at May 2020 and to further stabilize crude palm oil (CPO) price that currently trading at the RM2,300 to RM2,400 per tonne.
The PENJANA initiative announced a 100 percent exemption from export duty on crude palm oil, crude palm kernel oil, and processed palm kernel oil from July 1, 2020, to Dec 31, 2020.
Upon this good news, countries such as India, China, and the European Union (EU) which has become Malaysia’s traditional market are expected to return to stock up on palm oil.
Malaysian Palm Oil Board director-general Dr. Ahmad Parveez Ghulam Kadir said since mid-May, Malaysia has begun to witness a resurgence in CPO prices.
“We are beginning to see the easing of COVID-19 induced lockdowns in most countries and the resumption of economic activities. There is also a need to replenish stocks that have been depleted due to import disruptions over the past few months,” he told Bernama.
Quoting Oil World, he said the performance of world oils and fats market is expected to be mixed, with total production and exports are forecast to be lower than that of the previous year.
However, total disappearance is expected to increase which leads to lower stocks and better prices.
“The bear may soon be turning into a bull”.
Commenting on PENJANA tax exemption, Ahmad Parveez said the move will encourage industry players to sell more palm oil and help them earn more income while solving their problems, including the additional costs incurred during these difficult times.
“We could promote more exports, especially to the top vegetable oil consumers, including India, China, and Pakistan. The announcement also bodes well with India’s decision to import 1.14 million tonnes of vegetable oil in June from the April-May monthly average of 865,000 million tonnes”.
To recap, Malaysian palm oil shipments to its top buyer, India plunged to a fresh record low in April on lack of demand.
As for March, it only exported 10,806 tonnes to India, a decline of 97 percent from a year earlier, and the lowest monthly total in-board data going back to 2000.
But the situation is about to change, hopefully.
The Malaysian Palm Oil Council, via its second webinar on “Palm Oil in the Post-Pandemic Market” said palm oil export is expected to increase 2.5 percent to 4.56 million tonnes in the third quarter versus the previous quarter on improved demand from the traditional markets — India, China, and the EU.
Its chief executive officer Datuk Dr. Kalyana Sundram said India, which relies heavily on edible oil, will resume its purchase of about 2.15 million tonnes of palm oil in the third quarter, facilitated by the government’s recent CPO duty exemption and competitive pricing versus other palm oil producers.
India bought about nine million tonnes of palm oil annually, which accounts for nearly two-thirds of its total edible oil imports with 4.4 million tonnes of its purchase came from Malaysia last year.
“China’s demand for palm oil will also increase with an estimated import volume of 1.8 million tonnes while the demand from the EU will likely be higher, owing to the decline in rapeseed production due to detrimental weather and lower seed crushing activities,” Kalyana said.
He believed the industry is marching ahead positively for the rest of the year, despite the pandemic.
And if the stocks continue to deplete, there is a good chance for the CPO price to trade higher, benefitting the smallholders and the big companies.
Cargo surveyor Intertek Testing Services recently reported that Malaysia’s palm oil exports in the June 1-10 period increased 61.71 percent to 545,360 tonnes from 337,255 tonnes in the same period in May 2020.
Similarly, cargo surveyor Amspec Malaysia stated that exports in the June 1-10 period rose 59.53 percent to 550,341 tonnes from 344,983 tonnes in the same period in May 2020.
Palm Oil Analytics owner and co-founder Dr. Sathia Varqa said Malaysia’s CPO futures benchmark price may trade higher in June and July if it maintains its higher export figures, including to India.
But he cautioned as production reach its peak from August until October, the commodity price may fall slightly to RM2,200 per tonne.
On production, Malaysia and its counterpart, Indonesia, would see lower production while facing the uncertain and fragile COVID-19 challenges, he said.
Malaysia’s production is expected to go down to 19 million tonnes in 2020 from 19.85 million in 2019 while Indonesia’s production is likely to remain unchanged, at 45 million tonnes.