Better ties with India needed as palm oil sector prepares for worst, says analyst

Palm oil demand from India, Malaysia’s largest market for the commodity, is likely to remain negligible even post-Covid-19.

PETALING JAYA: A palm oil analyst has urged Putrajaya to go all out to repair diplomatic ties with New Delhi and work out a deal to bypass Indian restrictions on the import of refined, bleached and deodorised (RBD) palm oil.

Singapore-based Sathia Varqa said this would be the “lowest hanging fruit” to help boost demand for palm oil which has been badly affected by Covid-19 and lockdowns in countries around the world.

This, he said, had been further complicated by the drop in crude oil prices which made biodiesel financially not viable.

“Diesel is now trading at US$191.50 per tonne while crude palm oil is trading at US$465 per tonne. This is more than double the price of diesel.

“This is a difference of almost US$300, a huge disparity and it will not make sense to blend biodiesel.”

Prior to the Covid-19 outbreak, the adoption of a higher biodiesel blend was seen as one of the ways to support the demand for palm oil.

In 2018, then-prime minister Dr Mahathir Mohamad urged the local palm oil industry to join the ranks of countries already using B20 biodiesel, which is a blend of 20% palm oil and 80% diesel.

“The outlook for palm oil was good as recently as January, with Malaysia set to roll out B20 biodiesel in stages and Indonesia implementing B30 biodiesel, but then Covid-19 happened and everything has changed and exports have fallen,” Sathia told FMT.

He said the current fasting month and upcoming Hari Raya would offer some reprieve.

Exports could increase slightly, between 2% and 4% from March, due to higher demand in Bangladesh, Pakistan and the Middle East.

“The problem will start once this demand dissipates,” he said.

He foresees the European Union and China as being the main active markets for the remainder of 2020, though even this is likely to decrease.

“In the case of the EU, their demand for palm oil is mostly for biodiesel in the transport sector but this is likely to continue to be affected by Covid-19.”

In China, he said, demand would suffer from the low price of other edible oils, particularly soy.

Demand from India, which had been one of Malaysia’s largest palm oil markets in the past is likely to remain negligible even post-Covid-19.

Last year, there were reports that India put up barriers on imports from Malaysia after Mahathir’s criticism of New Delhi’s policies including on the Kashmir issue and India’s controversial citizenship law.

“It is important to note that India is still importing crude palm oil from Malaysia, but it has placed very high tariffs on RBD and restricted its imports to protect Indian refiners.

“One of the best things the government can do for the palm oil industry would be to repair ties with India, that is a low-hanging fruit, and work towards a deal to get past the RBD import restrictions.

“If this can be done, I think it will be great for the Malaysian palm oil industry. But either way, this is going to be a challenging year.” - FMT