Malaysian Palm Oil Prospects in The West Of Suez Region

Synopsis

The West of Suez region which covers 11 countries, namely Algeria, Djibouti, Egypt, Eritrea, Ethiopia, Libya, Morocco, Somalia, Sudan, Jordon, and Tunisia, heavily depends on oils and fats imports to meet the growing consumption. Dependence on imports of oils and fats has been increasing due to a huge and growing population of about 400 million and stagnant local production. The expanding potential for palm oil imports and consumption is feasible despite the slowdown of the economy in some countries in this region, due to the size of the population and low per capita consumption which provide the basis for further increase in oils and fats intake.

Several countries in the region were faced with higher commodity prices, declined growth, and spill over effect from the COVID 19 pandemic. Fiscal positions also deteriorated. Revenues declined in many countries as economic activities slowed down and thus weakening economic fundamentals. The impact of Covid-19 is expected to slightly influence the imports of most of the countries, as only fewer countries have good progress in vaccination like Morocco, which is expected to have a better situation than other countries. The political situation in some countries, such as Tunisia & Ethiopia could impact the imports in those countries.

Most of the countries in West Suez region are highly price-sensitive markets, due to their terrible economic situation. Excessive consumption of oils and fats in those markets is a great opportunity for palm oil expansion. However, discounted prices offered by Indonesian palm oil suppliers in this region lead to higher imports from Indonesia and thus weakening Malaysian palm oil supply to those markets.

Malaysian Palm Oil Performance

During the period of Jan-June 2021, Malaysian palm oil export to the region recorded at 224,498MT compared to 245,999 MT same period previous 2020, exports weakened by 9% (-21,501 MT). Djibouti is the top importer, accounting for 40% of the total export to the region, exports to Djibouti increased by 61% to record 90,299 MT compared to 56,194 MT same period last year. Egypt is ranked second, accounting for 26% of the exports, a decrease of 31%. Somalia is the third major destination for palm oil export recorded at 30,803 MT with the share of 14% of the total export, exports to Somalia severely declined by 53% compared to the same period last year. Algeria witnessed a significant increase of 61% contributing to 7% of the total exports. Yet, exports to Morocco dropped significantly to 686 MT from 7,553 T in the corresponding period of 2020 and Tunisia did not import any palm oil from Malaysia in 2021. For the record, both Morocco and Tunisia imported more than 10,000 MT from January to June 2020.

Malaysian Palm Oil Export to West of Suez
COUNTRY JAN – JUN 2021 JAN – JUN 2020 Diff %
ALGERIA 15,243 9,479 5,764 61
DJIBOUTI 90,299 56,194 34,105 61
EGYPT 58,401 84,705 -26,304 -31
ERITREA 1,948 790 1,158 147
ETHIOPIA 6,830 7,020 -190 -3
JORDAN 15,242 6,152 9,090 148
LIBYA 322 249 73 29
MOROCCO 686 7,553 -6,867 -91
SOMALIA 30,803 66,000 -35,197 -53
SUDAN 4,724 4,606 118 3
TUNISIA 0 3,251 -3,251 -100
Total 224,498 245,999 -21,501 -9

Source: MPOB

It is forecasted that Malaysian Palm oil exports to the region to record 251,617 MT in the second half of 2021, this is based on the average exports incurred in Jan-June. Djibouti is predicted to be maintained as the largest destination for MPO exports in the West of Suez Region. Exports are forecasted to see some increase in the second half of the year to this market. Most of the countries in the region are expected to maintain similar import quantities of MPO in the second half of 2021.

MPO Exports to West of Suez Region
Country Forecast
 Jul-Dec 2021
Actual
Jan-June
ALGERIA      15,647 15,243
DJIBOUTI    110,167 90,299
EGYPT      62,445 58,401
ERITREA         1,659 1,948
ETHIOPIA         8,372 6,830
JORDAN      15,672 15,242
LIBYA            338 322
MOROCCO            546 686
SOMALIA      30,814 30,803
SUDAN         5,955 4,724
TUNISIA 0   0
Total    251,617 224,498


5 Year MPO Import Performance

Country 2016 2017 2018 2019 2020
Algeria 32,100.53 29,976.31 28,922.28 34,660.53 17,015.63
Djibouti 80,212.64 137,994.87 216,189.98 52,316.48 122,389.84
Egypt 151,648.81 191,611.84 67,338.35 84,949.62 155,747.22
Eritrea 7,511.63 9,562.77 5,939.82 4,935.60 2,638.71
Ethiopia 136,231.51 173,591.13 148,647.03 64,757.12 20,080.38
Libya 413.17 148.01 398.52 681.67 272.87
Morocco 25,106.38 16,685.10 22,056.88 2,433.56 18,613.41
Somalia 80,380.76 82,321.99 77,928.76 93,455.57 101,595.30
Sudan 3,422.43 14,646.50 4,358.96 7,456.67 25,925.82
Tunisia 10,435.78 9,840.63 130.31 535.26 3,337.25
  527,463.64 666,379.15 571,910.89 346,182.08 467,616.43

Indonesian Palm Oil

The weakening in imports of Malaysian palm oil is partly contributed to the increase in Indonesian palm oil import.  Imports of Indonesian palm oil by Egypt have recorded an outstanding growth of 47.6% while imports by Djibouti have also increased by 58.5%. 

Export of IPO to Egypt, Djibouti, Algeria, and Sudan collectively increased by 33.10% in Jan-May 2021 compared to same period last year.

Indonesia Export of Palm Oil to Selected North Africa Markets.

  Jan – May 2021 Jan – May 2020 Change (MT) Change (%)
Egypt 437,000 296,000 141,000 47.6%
Djibouti 111,000 70,000 41,000 58.5%
Algeria 10,000 55,000 (45,000) 81.8%
Sudan 30,000 21,000 11,000 52.3%
         
  588,000 442,000 146,000 33.1%

SNAPSHOT OF SELECTED COUNTRIES

Egypt

Egypt’s economic growth is expected to rebound strongly to 5.2 percent in the 2021-22 fiscal year, according to the International Monetary Fund (IMF), almost doubling the 2.8 percent growth for 2020-2. The economic and social impact of the coronavirus pandemic over the past year had been well-managed by the Egyptian authorities. But the IMF expects growth to rebound in the 2021-22 fiscal year, noting that Egypt was one of the few emerging market countries that experienced a positive growth in 2020. The IMF also predicts that Egypt’s foreign direct investment (FDI) is expected to grow over the next four years, jumping by about 60 percent during the 2021-22 fiscal year to a total value of $8.6 billion. According to Forbes Middle East’s list of the largest economies in the Arab region, Egypt is placed third with total GDP expected to reach $394.3 billion in 2021, up from $361.8 billion in 2020.

The government of Egypt is putting more attention to develop government-owned oils and fats factories in Egypt. Ministry of Supply and Internal Trade recently announced that it aims to establish the largest edible oil factory in the Middle East with a production volume of 2,400 MT of blended oil per day. It is also planning to develop the current edible oils factories aiming at enhancing production capacity, reducing cost, and maximizing profits. Egypt, which imports 95% of its vegetable oil needs through state buyer GASC, offers buyers a blend of soybean and sunflower oil covered by its extensive subsidy program, which also includes staples such as bread and rice.

In Egypt, edible oil prices have witnessed continuous increases in the local market since last December. However, palm olein maintains its position as the cheapest and the most affordable oil in the market with a substantial price difference compared to other oils. Considering the increase in imports in oils and fats specifically palm, it is feasible that palm oil imports may hit 1.2 million tonnes this year. Unfortunately, palm oil supply in Egypt is entirely captured by Indonesian origin, and MPO exports to the country recorded a very minimal amount due to discounted IPO prices.

Ethiopia & Djibouti

MPO exports are on a downward trend in Ethiopia. In 2020, exports to Ethiopia are badly hit to record a 69% decline compared to 2019. RBD palm olein was the highest commodity imported in 2020 to record 12,761 tonnes, a significant drop of 79% compared to 2019.   RBD palm oil witnessed a 31% increase in 2020 compared to the previous year. The decline of MPO direct exports to Ethiopia is offset through palm oil imports from Djibouti. All the palm oil sold in Ethiopia is imported, against a backdrop of foreign exchange shortages. By importing from Djibouti, there is no foreign exchange problem. Currently, Djibouti is the main entry port of palm oil to Ethiopia. Djibouti, on the other hand, intends to become a Malaysian palm oil production and processing hub for the Horn of Africa to fulfil high demand in Ethiopia, Somalia, and Eritrea. Golden Africa, a subsidiary of the Malaysian trader Pacific Inter-Link, is investing in a palm oil processing facility in Djibouti.

Despite the potential and good economic track record in the past years, some factors influence Ethiopia’s rapid economic growth.  Government spending is the only factor boosting the economy.  Without good government investment, increase in tax revenue the growth may not sustain. The situation has been reflected in the 2019 consumption of oils and fats, which indicated a slowed down in the country’s economy.  The situation is expected to continue especially when the whole world is battling with the COVID -19 pandemic which has crippled the world economy including the Ethiopian.

Palm oil imports in Ethiopia are dropping. Changes in consumer preferences led to the consumption of sunflower oil have almost tripled over the last couple of years.  Imports of sunflower in the fiscal year 2019/20 increased by 46%, while palm oil diminished by 37% in the fiscal year 2019/20 compared to 2018/2019. Ethiopia imports palm oil mostly from Indonesia (48 percent) and Malaysia (36 percent). The Government of Ethiopia subsidizes edible oil imports and sets the selling price to make it more affordable to the consumers.  The government distributes the imported oils to district unions for sale under mandated tariffs. The government in return supports the companies by giving duty-free privileges and foreign currency exchange.

In a way to save foreign currency expenditure on edible oil imports, Ethiopia started 2020 with an announcement that a huge and modern edible oil processing plant will be constructed in the country. The plant is expected to produce 600,000 liters of oil per day, enabling Ethiopia to save 25% of the expenditure it uses to import edible oil. Currently, the local production of Ethiopia meets only 4% of the demand. The project will be led by Horizon Plantations plc, a subsidiary of Midroc group which is owned by al-Amoudi.  The major raw material for the factory would be groundnut, soybean, sunflower, and cottonseed, which are mainly sourced from the MIDROC farming group.

Algeria

MPO exports to Algeria Jan-Jun 2021, witnessed an increase of 14.3% compared to same corresponding period last year. The main products that demonstrated changes are RBD palm oil which increased from 3,910 MT to 4,455 MT (14%), RBD palm stearin from 1,599 MT to 4,102 MT (156%), and HRBD palm oil 2,185 MT to 5,454 (150%).

Algeria’s economy, like many in the region, struggled during 2020, witnessing a fall in GDP of between 4.7 to 5.5%. Low global demand for hydrocarbons contributed to this fall as Algeria remains heavily dependent on its oil and gas sectors for revenue. However, recent economic indicators suggest that since the beginning of 2021, Algeria has started to move into a better economic space. This has been largely attributed to global oil prices recovering due to the rising demand for hydrocarbons in China.

Prepared by Lamyaa El Enany and Fatimah Zaharah

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