Outlook for Palm Oil Demand in the Subcontinent Region – Q4 2020

The countries in the subcontinent region are important export destinations for Malaysian palm oil. During Jan-Nov 2020 period, MPO exports to this region recorded 3.68 million MT against 5.65 million MT which was registered during the same period of last year (refer to Table 1).

Table 1: Malaysian Palm Oil Export Performance (MT)

No. Country Jan-Nov 2020 Jan-Nov 2019 Diff (Vol) Diff (%)
1. India 2,178,517 4,270,864 (2,092,347) (48.99)
2. Pakistan 955,881 994,531 (38,650) (3.89)
3. Bangladesh 301,996 150,444 151,552 100.74
4. Sri Lanka 117,091 82,067 35,024 42.68
5. Afghanistan 69,170 64,948 4,222 6.50
6. Uzbekistan 29,657 50,983 (21,326) (41.83)
7. Kazakhstan 14,574 17,943 (3,369) (18.78)
8. Maldives 4,986 5,454 (469) (8.59)
9. Nepal 2,401 5,802 (3,401) (58.61)
10. Turkmenistan 1,358 826 532 64.40
11. Kyrgyzstan 591 1,513 (923) (60.96)
12. Tajikistan 119 244 (125) (51.38)
13. Bhutan 0 0 0 0.0
  Grand Total 3,676,341 5,645,619 (1,969,279) (34.88)

Source: MPOB

The decline is largely attributed to lower MPO exports to the biggest buyer in the region, India. During Jan-Nov 2020 period, total MPO exports to the country went down to 2.18 million MT from 4.27 million MT recorded during the same period last year. The restrictions on the importation of refined palm oil since January this year has greatly impacted the amount of palm oil export from Malaysia going into the country at least during the first 6 months of 2020.

The scenario has since changed as MPO exports started picking up since July 2020. With the bilateral relationship between the two countries improving, Malaysia started to export more CPO to India as Malaysian companies were reportedly able to offer competitive prices taking advantage of the fully exemption from export duties that includes for CPO as announced by the Malaysian Government on 5 June 2020. 

As a result of the import restrictions on the refined products, the Indian buyers turned to buy CPO which benefitted mostly the Indonesian palm oil due to price advantage. This led to the Indonesian suppliers focusing on fulfilling the added demand coming from India since the start of the year. Consequently, this left a gap in other major markets such as Pakistan and Bangladesh where Malaysian companies had been able to fulfil the demand which inevitably saw Malaysia gaining higher market shares. During this time, it was reported that Malaysian suppliers were able to offer competitive prices to the local buyers in both Pakistan and Bangladesh.

Forecast for Q4 2020 for Major Markets

The Indian edible oils import scenario has already experienced a rapid change in 2020 as expected earlier. Imports started to surge since July 2020 due to the gradual opening up of HORECA sector as well as restocking due to fear of price risk and demand destruction. For the remainder of 2020, slowdown in imports are expected for India. The tempo is likely to be maintained in Sept-Oct due to the upcoming festival season, though a bit subdued this time but slowdown is expected in November and December. September and October are normally the peak import months traditionally but this time, the trade is expecting a low-key festivities and hence this will affect the demand. Taking into consideration all these factors and subject to changes, the import demand’s estimations for palm oil in the month of Aug-Dec 2020 will be 3.34 million MT. Based on the projection, if Malaysia were to maintain its market share at 35% until end of 2020, it is estimated total MPO exports could reach 2.02 MMT by December 2020.

Pakistan’s edible oils market has demonstrated a resistance so far as it continues to import a large amount of oils and fats despite the industry facing the lockdowns that have caused some disruptions. However, the imports have slowed down starting August 2020 and are likely to maintain an average import volume of 225,000 – 250,000 MT for the remaining months of the year. At the end of 2020, it is anticipated that the overall imports of oils and fats will register a decline of 4% compared with the volumes of 2019. Some of the factors which are contributing to this trend include local spot market discount of approximately USD 15 per MT which is diverting sizeable volumes from C&F imports; sufficient local stocks in the range of 325,000 MT; slower than expected recovery in the demand from the food and HORECA sector, and increase in the availability of soybean oil from the local crushing industry. The imports of Malaysian palm oil in Pakistan in 2020 are likely to register an increase and will exceed the volume of 1.15 million MT. The percentage increase in the import of MPO in Pakistan was higher in the first half of the year, which was due to restricted availability from Indonesia and price competitiveness of Malaysian suppliers. Furthermore, at the moment the Indonesian suppliers are offering discounts in the range of USD 2.5 – 5 per MT, which could also give advantage to Malaysian companies. In normal circumstances, the price discounts between IPO and MPO would be within the range of USD 5 – 10 per MT. At the same time, import of palm oil products other than palm oil have also increased sharply in Pakistan in the last 9 months.

In Bangladesh, Covid-19 virus continues to pose threats in the total imports as well as oils and fats consumption in the country. It is anticipated that palm oil consumption will continue to be affected until the end of the second half of 2020. Hence, we could see a further reduction in the import of palm oil in the second quarter of 2020. A higher quantum of decline can be expected since palm oil has a larger share in the Bangladeshi edible oils market. This includes reductions in the household consumption, shortening/Vanaspati industries, food processing industries, hotels and restaurants including fast food chains as well as street vendors.  However, with the ease of lockdown in the country, things have looked to be back to normal. Hence, trading volumes of oils and fats could also increase resulting in importers being active. This can contribute to the increased import of oils and fats. Total palm oil demand is expected to be around 1.4 million MT for 2020, with Malaysian palm oil export to reach 275,000 MT by the end of December 2020.

Other countries in the region import much lower amount of oils and fats including palm oil. Sri Lanka also saw its palm oil imports from Malaysia increased notably. Total MPO exports reached 117,091 MT during Jan-Nov 2020, 42.7% higher compared to the same period last year. The country’s higher edible oils requirements against the backdrop of insufficient domestic production of oils and fats has led to higher palm oil imports. Some of the palm oil is also being re-exported to India as local traders taking advantage on the Free Trade Agreement (FTA) between the two countries that enables Sri Lanka to export their products to India at zero duty.

Among the countries in the Central Asian region, Afghanistan appeared to be the most important MPO buyer up to September this year. MPO exports to this country have increased by 6.5%, registering a total of 69,170 MT during Jan-Nov 2020 period as Afghanistan continues to be relying on edible oils imports to fulfil domestic needs. However, MPO exports to Uzbekistan and Kazakhstan continue to be on decreasing trend registering a drop of 41.8% and 18.8% respectively. The global Covid-19 pandemic is having a negative impact on these countries’ economies that also saw local edible oil consumption took a tumble with the closure of restaurants due to nationwide lockdowns.

Prepared by:   Azriyah Azian

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