COVID-19, The Netherlands, and Palm Oil

A nation of traders by tradition, the Netherlands with its Port of Rotterdam – the largest seaport in Europe – and Schiphol Airport, a significant cargo center, serves as an import and distribution hub for the rest of Europe.

The palm oil trade is no different. For years now, the Netherlands has been Europe´s largest importer. The Dutch economy as a whole also thrived until 2019, with GDP growth rates above the EU average.

But, due to the fierce impact of the Coronavirus, this is about to change. In April 2020, economists at the IMF predict a negative growth of no less than 7.5 % for the Netherlands in 2020. And that is under the assumption that the efforts to contain the pandemic will start to bear fruit in the second half of the year.

The Current Scenario

The Coronavirus pandemic reached the Netherlands comparatively late. According to WHO data, even in the first week of March, the number of infections was less than 100 persons.

Like Great Britain and Sweden, the Dutch had initially tried to deal with the Corona crisis differently from their European neighbor’s. While the aim was to isolate extreme risk groups such as the elderly and those who had previously been ill, the majority of the less susceptible population was to continue to live their everyday lives. However, this approach was soon abandoned.

The change in tactics is came following strong growth in the numbers of both people infected and deaths due to COVID-19.

At first glance, the pandemic numbers in the Netherlands appear relatively small compared to other European nations. However, a direct comparison with Germany regarding the incidence, that is, cases per 100,000 inhabitants, reveals that the situation in the Netherlands is rather severe.

First, the number of infected people per 100,000 inhabitants is considerably lower in Germany. But, more dramatically, the incidence of people dying from COVID-19 is almost four times as high in the Netherlands.

Incidence of COVID-19 infections and deaths in the Netherlands per 100,000 inhabitants

  Population Infections Per 100´000 Deaths Per 100´000
Netherlands 17 million 35,000 205 4,054 24
Germany 83 million 150,000 188 5,100 6,4

Source: own calculations based on data of the Johns Hopkins University as of April 22, 2020

As the realization sank in with the Dutch government that the initial lenient approach would not succeed in keeping the health system afloat, it changed course. Now the restrictions Europeans have become familiar within the last six weeks are, in some respects, even stricter in the Netherlands than in other places.

Many businesses, including bars, restaurants, barbershops, and non-essential stores, are closed. Schools will not open until after the spring holidays on May 11 and only partially. Travel restrictions remain in place.

In a press conference on April 21, 2020, Dutch Premier Mark Rutte announced that most of these measures would remain in place at least until May 19. He added: “Public health first. Then the rest.”

So, what about the economy?

How is the Economy Coping?

The Dutch economy is very open and thus depends on international trade more than most. The answer to the above question will depend on how long the restrictions across Europe kill demand for the products the Netherlands imports and sells to the rest of Europe.

A good indicator is the Port of Rotterdam. While the port itself says that it has been able to keep operations up and running despite the difficulties associated with COVID-19, Bloomberg reports that overall throughput volume dropped 9.3% in the first quarter of 2020.

It is important to note that this is not primarily a result of lacking supply or logistical problems caused by the Coronavirus. Instead, it is a manifestation of nosediving demand across Europe.

For example, the Port of Rotterdam has five refineries and multiple oil-storage facilities. But as demand for products like jet fuels and diesel has all but vanished, storage capacity is coming to a limit.

As port CEO Allard Castelein points out in a statement on April 16, 2020, the full impact of the COVID-19 crisis will only be felt after April. He expects a 20 % decline in the port´s throughput on an annual basis.

What About Palm Oil?

The year 2019 was a good one for palm oil in the Netherlands. According to figures published by MVO – The Netherlands Oils and Fats Industry, the country imported a total of 2.5 M MT of palm oil worth more than 1.3 billion euros.

Dutch palm oil imports 2019 – absolute (in MT) and country percentages

Source: MVO

Figures by the Malaysian Palm Oil Board, MPOB, suggest that this positive momentum could be carried over into 2020. The following table shows that for the first quarter, year-on-year Malaysia´s palm oil exports to the Netherlands grew by a hefty 30 %.

Malaysian palm oil exports to the Netherlands (MT)

January – March 2019 January – March 2020 % change
233,338 304,678 + 30,75

Source: MPOB

However, these numbers will undoubtedly drop in subsequent quarters. The Coronavirus reached Dutch shores only in early March, much later than Italy, for example. Therefore the real extend of the crisis shows up with a time-lag in the statistics.

Outlook

Predictions in the current situation are a fly-by-night endeavor. However, from everything that can be known to date, especially commodity exporters should brace for tough times for months to come.

As more than 50 % of the palm oil Europe imports are used in biodiesel, just the stark drop in transport due to COVID-19 restrictions will be enough to put a dent in the market.

The longer-term prospects are unclear. Some analysts predict that soon individual car use will significantly grow as people try to practice social distancing and therefore shun public transport.

Prepared by Uthaya Kumar

*Disclaimer: This document has been prepared based on information from sources believed to be reliable but we do not make any representations as to its accuracy. This document is for information only and opinion expressed may be subject to change without notice and we will not accept any responsibility and shall not be held responsible for any loss or damage arising from or in respect of any use or misuse or reliance on the contents. We reserve our right to delete or edit any information on this site at any time at our absolute discretion without giving any prior notice.

You can share this posts: