Palm oil industry upbeat as economies reopen

Malaysia’s CPO futures benchmark price may trade higher in June and July if it maintains its higher export figures, including to India.

KUALA LUMPUR: After a sharp slowdown in the first quarter due to the Covid-19 lockdown imposed by countries across the globe, the palm oil industry has turned more optimistic.

As businesses resume operations, industry players expects demand for palm oil to pick up.

Palm oil players also welcomed the tax exemption provided under the National Economic Recovery Plan (PENJANA) which could help to manage the country’s current stock level of 2.03 million tonnes as at May 2020. The exemption will further stabilise crude palm oil (CPO) price which are trading between RM2,300 and RM2,400 per tonne.

Under the PENJANA initiative, there is a 100% 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.

Demand is expected to pick up from India, China and the European Union (EU) which are Malaysia’s traditional markets.

Malaysian Palm Oil Board (MPOB) director-general Dr Ahmad Parveez Ghulam Kadir said since mid-May, there has been 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 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 to be lower than the previous year.

“The bear may soon be turning into a bull”.

Commenting on the 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, down by 97% 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 (MPOC), via its second webinar on “Palm Oil in the Post-Pandemic Market” said palm oil export is expected to increase 2.5% 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.

MPOC 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 buys about nine million tonnes of palm oil annually. This amount is about nearly two-thirds of its total edible oil imports, of which 4.4 million tonnes 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 to be higher, owing to the decline in rapeseed production due to detrimental weather and lower seed crushing activities, ” Kalyana said.

He believed the industry’s prospects was improving forhe 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 Malaysia’s palm oil exports in the June 1-10 period increased 61.71% to 545,360 tonnes from 337,255 tonnes in the same period in May 2020.

Cargo surveyor Amspec Malaysia stated exports in the June 1-10 period rose 59.53% 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 reaches its peak from August until October, CPO may fall slightly to RM2,200 per tonne.

On production, Malaysia and its counterpart, Indonesia, would see lower production due to the fallout from the Covid-19, he said.

Malaysia’s production is expected to fall 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.- Bernama

Source : The Star