Pakistan – A Consistent Market for Malaysian Palm Oil

Malaysian palm oil exports, which were adversely impacted by the movement restrictions and lockdown implemented in major countries of the world to contain the spread of the pandemic are now gradually recovering. Food & HORECA are among the sectors which were the worst affected by the lockdowns all around the world and disruption in the operations of these sectors led to the decline in the demand for palm oil in major markets.

During the period of Jan – July 2020, a lot of major importers of Malaysian palm oil posted a decline in the level of imports when compared with the same period of last year. However, there are certain markets where the exports of Malaysian palm oil have registered an increase during the same period. Pakistan is one such market where the exports of Malaysian palm oil have registered an increase of 16.3% in the first seven months of this year and it is likely to maintain this growth level till the end of 2020.

Domestic Oilseeds, Oils and Fats Scenario in Pakistan

Despite of the major disruptions caused by the extended lockdowns in all major cities of the country, Pakistan’s edible oils market has demonstrated a resistance as the it continued to import a large amount of oils and fats and oilseeds throughout the year. The overall imports of oils and fats have registered only a slight decrease of less than 2% during Jan-Jul 2020 period against the same period last year as shown in Table 1. This is mainly due to the fact that Pakistan is heavily reliant on the imports of edible oil as the local production is less than 10% of the total requirement.  

Table 1: Total imports of oils and fats (Jan – July)

Commodity Jan-Jul 2020  (MT) Jan-Jul 2019 (MT) Changes Volume (MT) Changes % Jan – Dec 2019
Crude Palm Oil 78,600 279,483 (200,883) (71.88) 376,233
Palm Oil 507,753 431,104 76,649 17.78 775,648
Palm Olein 1,091,469 936,795 154,673 16.51 1,793,803
Palm Fats 50,348 63,124 (12,776) (20.24) 129,776
Soybean oil 67,840 121,080 (53,240) (43.97) 146,499
Total 1,796,008 1,831,586 (35,578) (1.94) 3,221,959

                                  Source: Shipping Agents’ Vessel Report

From the total import table it can be noted that the import of CPO has registered a decline of 200,883 MT, however, this decline was compensated by the increase in the volume of refined fractions of palm oil, which have registered an increase of 231,322 MT in the same period. This switch in the buying preference in Pakistan was mainly due to low spread in the prices of crude and refined palm oil which makes the import of refined fractions more attractive. In totality, imports of palm oil actually have increased by 30,439 MT as of end of July 2020. The decline in the overall imports of oils and fats is primarily due to the decrease in the import of soybean oil by 53,240 MT on year-on-year basis. This decline is mainly due to the high imports of soybeans which led to the increase in soybean oil supply from the crushing industry.

In terms of oilseeds, total imports have registered a volume of 1,881,313MT at the end of July, which is 352,631 MT or 23.07% higher when compared with the same period of last year. This increase is primarily driven by the high imports of soybeans which is showing a growth of 51.29% or 524,331MT. In the first quarter of 2020, the crushing industry enjoyed high margins which led to higher imports of oilseeds.

Table 2: Total imports of oilseeds (Jan – July)

Commodity Jan- Jul 2020  (MT) Jan- Jul 2019 (MT) Changes Volume (MT) Changes % Jan – Dec 2019
Canola 334,775 506,475 -171,700 (33.90) 826,400
Soybean 1,546,538 1,022,207 524,331 51.29 1,874,072
Total 1,881,313 1,528,682 352,631 23.07 2,700,472

                                                                                                     Source: Shipping Agents’ Vessel Report

MPO Imports Scenario in Pakistan

Pakistan imports a significant amount of palm oil annually and import from Malaysia has been consistent over the years. As illustrated in Figure 1, Malaysia exported a total of 1,085,546 MT to Pakistan, mostly in the form of RBD palm olein, which accounted for 46% of total export. CPO and cooking oils were the next major products exported to the country holding a market share of 19% each.

Figure 1: MPO Exports to Pakistan in 2019

Source: MPOB

As for July 2020, Pakistan has been consistently importing palm oil from Malaysia. Total MPO imports rose by 16.3% to 691,149 MT during Jan-Jul 2020 period from 594,039 MT registered during same period last year. Among the palm oil fractions imported in 2020, the import of palm olein has registered an increase of 93.9% or 236,094 MT which is mainly due to the price competitiveness of Malaysian suppliers in the first two quarters of this year. Despite of the abolishment of CPO export duty from Malaysia, the import of CPO in Pakistan has registered a decline of 63.9% in the same period. Price spread between RBD palm oil and CPO dictates the viability of CPO imports in Pakistan. Keeping in view that the duty on CPO is only USD 10 lower than that of RBD palm oil and the average refining cost varies between USD 20 – 25 per MT. It is only viable for the local refining industry to import CPO when it is at least USD 20 per MT cheaper than RBD palm oil.

Table 3: MPO Exports to Pakistan; Jan-July 2019 vs 2020

Type of Products Jan-Jul 2020 MT Jan-Jul 2019 (MT) Changes Volume (MT) Changes % Jan – Dec 2019
RBD PL 457,901 236,094 221,807 93.9 503,098
CPO 58,002 160,732 -102,731 -63.9 209,833
CO / DPL 79,265 106,321 -27,056 -25.4 208,908
RBD PO 71,483 63,836 7,647 12 113,043
PAO 12,976 16,492 -3,515 -21.3 32,518
OTHERS 11,523 10,564 959 9.1 18,146
TOTAL 691,149 594,039 97,110 16.3 1,085,546

Source: MPOB

Outlook for Palm Oil

After recording the highest import volume of 322,366 MT in the month of July 2020, the imports of oils and fats are now slowing down 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% when 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 & 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. However, it has been reported that Indonesian suppliers are again offering discounts in the range of USD 5 – 7 per MT which is diverting export volumes in their favour.

Prepared by  Faisal Iqbal and Azriyah Azian

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