Palm oil opportunities: India and China demand for Malaysian palm oil likely to rise this year as economies open up

The experts - Malaysian Palm Oil Council (MPOC) Deputy Director Faisal Iqbal, Malaysian palm oil products manufacturer Alami Group Managing Director Ahmed Alami, and agriculture research firm Refinitiv Senior Analyst Dr Tan Kian Pang - convened at a virtual seminar on palm oil price trends and market expectations for 2021.

According to Dr Tan, the demand from India and China, two of the largest palm oil importing countries in the world, is expected to improve in 2021, as economies bounce back and open up.

“We predict a likely increase in palm oil demand from India due to current low stocks – levels were at some 400,000 tons as of December 2020, which is down 40% from the situation in December 2019,”​ he said.

“India is also a price-sensitive economy, and the cheaper price of palm oil compared to other oils could attract buying interest [from consumers].​

“As for China, the economy is seeing rapid recovery, and this will keep demand steady. Palm oil in China is still the most preferred by food manufacturers and commercial sectors as it is considered cost-effective and versatile.​

“[Palm oil use in food manufacturing in particular has seen a boost], as it is used in the manufacturing of instant noodles, frozen foods, snacks and the like which were all highly consumed in China last year [and are still popular foods].”​

Alami concurred with this, adding that the benefits of the cheaper price of palm oil compared to other edible oils have been seen in the increase of consumers showing interest in purchasing palm oil in retail packs at supermarkets.

“The global production of sunflower oil, one of palm oil’s biggest competitors, fell by some 2.7 million tons last year due to lower seed production and declined yield, leading to higher prices which we believe will last till Q3 2021 – this here is an opportunity for palm oil to [capture market share],”​ he said.

“This is especially so as now is the time that economic recovery is starting, especially in the HORECA sector for restaurants and cafes, and palm oil demand will rise, and we’ve also already been seeing more and more previously non-F&B businesses turn to F&B due to the potential lucrativeness of the sector.”​

Even for markets such as the European Union (EU) where growth is expected to be muted due to incoming policies unfavourable to palm oil such as the Renewable Energy Directive (RED) II and other food safety regulations, there is still a ray of hope.

“The EU may be putting various directives in place this year that could dampen palm oil imports, but there is still hope in the form of a shortfall in rapeseed supplies, which may keep palm oil imports steady,”​ said Dr Tan.

“If there is a lack of rapeseed oil, the EU will need to look to other vegetable oils as an alternative, and amongst these, palm oil is still the cheapest.”​

Malaysian palm oil is also expected to see something of an advantage over Indonesia in terms of price, as the latter has just implemented a revision to its export levy structures which will increase its oil prices.

“Indonesia has just adopted a progressive export duty structure for palm oil exports to support its B30 programme (a local blending programme for biodiesel) where in total additional levies of some US$348 or so are expected,”​ said Iqbal.

How to grow in uncertain times​

Despite all the available opportunities, overall the experts also agreed that a lot of uncertainty still exists, especially due to production concerns over labour and weather. This is particularly so in Malaysia where the COVID-19 pandemic is still causing a shortage of labour on oil palm plantations and factories have been closed down after workers tested positive for the virus.

“The forecast is that palm oil production in 2021 will remain below potential, particularly from Malaysia, which has a strong reliance of some 70% on foreign labour and the absence of these workers means harvesting and estate upkeep is affected,”​ said Dr Tan.

“In short, supply chain impacts still do exist for Malaysian palm oil, and already January production has been impacted by floods destroying estate roads or landslides on plantations – though it seems that the rains have now slowed and it is hoped that these conditions will help with harvesting and logistics.”​

Alami added that a challenges also lie in the logistics of international freight transportation and credit crunching, where demand may not have decreased but cashflow has, resulting in what seems like lower demand.

“The general prices of goods in many places have gone up leading to credit crunches for many people which translates to tighter cashflow, so even if the demand for palm oil is still there the capacity to [buy more at one time] is not, so it looks like demand has dropped,”​ he said.

“The other issue is in container freight rates which have gone up insanely, some 200% since the whole COVID-19 issue, which also causes credit crunches for consumers and importers and leads to the prices of palm oil becoming more expensive than local products, simply because of shipping.”​

Here, Alami urged the industry and government to take quick action to rectify these issues so as to not let the palm oil sector get left behind where there is progress to be found.

“For instance, ever country should have their own shipping line and container fleet – this is needed to mitigate the unbearable costs of freight and it has become essential for countries to maintain economic stability and growth,”​ he said.

“The other thing is that companies and industry players must make an effort to invest in e-commerce and digital marketing, which is the way forward – many are fearful of fake buyers or sellers, so a platform endorsed by the government or MPOC would be a very good one to make progress.”​

Alami also urged palm oil stakeholders ‘not to let their guards down’​ even though anti-palm oil sentiments have reduced somewhat in past months.

“These campaigns have only quietened down because of COVID-19 and they now have bigger things to worry about, so we cannot let our guards down – we need to keep promoting the advantages and benefits of palm oil and continue to challenge all anti-palm oil slogans,”​ he said.