Outlook for Palm Oil Demand in the Indian Subcontinent Region – Q2 2020

The South Asian countries in the Indian subcontinent region are important export destinations for Malaysian palm oil. At the end of 2019, MPO exports to this region registered an unprecedented record of 5.75 million MT, an increase of 36.3% from what had been achieved in 2018. The feat was largely attributed by the significant increase in MPO export to India which was recorded at 4.41 million MT due to an import duty advantage, accounting for almost 77% of the total MPO exports into this region.

The scenario has since changed for the first quarter of 2020 (Q1 2020). Data by MPOB shows that for the period of Jan-Mar 2020, MPO exports to this region has gone down by 957,994 MT or 66.9% as compared to the same period a year ago.

Malaysian Palm Oil Export Performance (MT)

No. Country Jan-Mar 2020 Jan-Mar 2019 Diff (Vol) Diff (%)
1. Pakistan 284,776 288,412 (3,636) (1.3)
2. India 78,812 1,108,878 (1,030,066) (92.9)
3. Sri Lanka 61,409 28,103 33,306 118.5
4. Bangladesh 46,028 2,440 43,588 1,786.4
5. Nepal 1,475 2,277 (802) (35.2)
6. Maldives 1,585 1,969 (384) (19.5)
7. Bhutan 0 0 0 0.0
  Grand Total 474,085 1,432,079 (957,994) (66.9)

Source: MPOB

Staggering drop of MPO export to India has contributed to the overall decline in the total exports into this region. Following a trade spat between India and Malaysia that occurred in 2019, a restriction has been imposed on the importation of refined palm oil into India. The restriction has greatly caused a major blow on the export of palm oil from Malaysia to this country. In fact, it is the sole main reason behind the decline of the MPO export into India. Due to the fact that the Indonesian suppliers have been fulfilling the added demand coming from India since the beginning of 2020, MPO has been gaining shares in the markets like Pakistan and Bangladesh. Palm oil imports from Malaysia have increased due to the fact that Malaysian suppliers are able to offer competitive prices to the local buyers.

Forecast for Q2 2020 for Major Markets

It is anticipated that oils and fats imports in Pakistan will maintain its current momentum and exceed the total volume of 1.6 million MT by the end of June 2020. Pakistan is a net importer of oils and fats with 90% of the total requirement being met with imports. This is the main reason that Pakistan’s import is maintaining its existing volumes, despite of the ongoing pandemic and restrictions. At the end of Q1 2020, the total import of edible oil in Pakistan registered a decline of only 1.2% lower when compared with the same period of last year. During the same period, the local stocks in Pakistan registered a decline of 9.5%, which compensated the lower arrivals. The arrivals of edible oil are also likely to strengthen in months of May and June to capitalise on the 2% duty relief which government of Pakistan has announced on the import of edible oil for a period of 3 months, ending on June 30, 2020.

It is also pertinent to note that palm oil and its major fractions contribute more than 95% of the total imports of oils and fats in Pakistan. MPO market share is currently at 27% and it is likely that Malaysia will continue to maintain this level of share and reach the total export volume of 450,000 MT by end of June 2020. This is based on the assumption that the current disruption in Sabah plantations will not affect the overall supply situation from Malaysia.

In India, total imports of oils and fats is projected to be 1.0 to 1.2 million MT on monthly basis, in which palm oil share will be at 50%. As the nationwide lockdown is extended until 3 May as announced by the Prime Minister, consumption of vegetable oils including palm oil is expected to suffer a setback. At the current rate, India is seen to have very little choice and soon could turn to Malaysia and start importing back, especially if the situation in Indonesia gets worse and the country goes into full lockdown as most of the countries are doing at the very moment. The country could step up purchases in the coming months as shipments are reportedly easing up. However, the current lockdown conditions will be the determining factor whether the required import volumes can be achieved or continue to add to the current woes. 

The Saurashtra Oil Mills Association (SOMA), the largest organisation of groundnut oil millers has also urged the Indian government to remove the restrictions on refined palm oil import to meet the huge shortfall in the domestic edible oil market owing to the lockdown. It added that the country could expect a spike in the domestic prices of edible oils in the coming month if there is no relaxation in the palm oil imports into the country. Malaysia is currently going through a partial lockdown but the palm oil industry can continue to operate due to the importance of palm oil to the country’s economy. The plantation sector has been allowed to resume their operations alongside the refineries and cooking oil producers.

Nevertheless, one thing for sure is that Malaysia cannot expect to achieve the same market share in the palm oil import basket as in 2019 (where Malaysia enjoyed a 45% market share) under the current situation. A reasonable expectation for MPO share would be about 25%, which is closer to the share as in 2018. On the other hand, soft oils could emerge as the winners as demand for soybean and in particular sunflower oil are seen to strengthen as these oils are being preferred as cooking oils mostly for the household consumptions. It is reported that the price parities between palm oil and soft oils have narrowed in favour of the soft oils.

Similar outlook is predicted in Bangladesh where Covid-19 virus continues to pose threats in the total imports as well as oils and fats consumption in the country. Preliminary data from the local source shows that import figures of palm oil on 1-20 April 2020 has declined to 88,271 MT as compared to 130,746 MT during the same period a year ago. Imports of crude degummed soybean oil however has increased to 92,300 MT during 1-20 April 2020, as opposed to 76,350 MT during the same period last year, owing to the competitive prices. Imports of rapeseed/canola has registered 19,748 MT in the first 20 days of April 2020 as compared to zero imports recorded during the same time span last year.

It is anticipated that palm oil consumption will continue to be affected in anticipation that the impact of the Covid-19 pandemic could prolong 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. Based on MPOC Dhaka market intelligence data, consumption of palm oil during Ramadan 2020 period is expected to go down by 62% to approximately 97,000 MT, a steep decline from 255,000 MT that was recorded during the month of Ramadan in 2019. 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.

Prepared by Azriyah Azian with Faisal Iqbal, Fakhrul Alam &  Bhavna Shah

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