Malaysian Palm Oil Slumps in Production

The abundant fruits of the palm trees are enriched with oil which can be used for cooking and cosmetics.
The abundant fruits of the palm trees are enriched with oil which can be used for cooking and cosmetics.

Malaysia is the world’s second-largest producer of palm oil. However, its production and export dived to an 11-month low.

Both production and export in Malaysia’s palm oil decreased to an 11-month low. But, according to the planters’ estimate, Southeast Asian inventories will improve by 0.34% from the month after to 1.59 million tons.

Output shrunk by 10%, equivalent to 1.3 million tons. It dropped for a third succeeding month to the lowest since February 2021.

Anticipated Downswing on Palm Oil Export

Malaysia’s exemplar palm oil contract FCPOc3 smacked a record 5,749 ringgit ($1,374.21) a ton. This is after Indonesia made it compulsory for every palm producer to sell a fifth of their domestic production, prevailing over other edible markets worldwide.

On the other hand, a price hike will possibly cause major buyers to switch to sunflower and soybean oils. These oils, which are bound for February 2022 shipment, are reasonably cheaper than palm oil. Major palm oil buyers include countries such as China, India, Pakistan, and many African countries.

“We should see stronger demand from the second half of February on key importer restocking activities and Ramadan demand,” according to Marcello Cultrera, institutional sales manager and broker at Phillip Futures in Kuala Lumpur.

Palm fruits are extracted to get palm oil.
Palm fruits are extracted to get palm oil. (tristantan/Pixabay)

He added that Malaysia would take more Indonesian market share in the coming six months. It is due to the current apprehensions associated with Indonesia’s Domestic Market Obligation (DMO) rule.

Last week, India stipulated restrictions on oilseed and edible oils stocks. The country limited the stocks that traders can wield to monitor hoarding and stall increasing prices.

Iran’s Hunger for Malaysian Palm Oil

Iran is eyeing Malaysian palm oil’s great potential for the Islamic country’s edible oil market, suggested Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin.

She said that Iran was Malaysia’s eighth top importer of palm oil last year. In 2020, their import increased to 26%, from 321,106 tons to 404,320 tons.

In terms of opportunities between the two countries, she compelled the private sector to reconsider the business strategies to create partnerships and strategic alliances. It will help seek out new systems for boosting edible oil and palm business oil in Iran.

According to Zuraida, the worldwide resume of economic sectors after the Covid-19 pandemic has resulted in a strong market for Malaysian palm oil, including in Iran.

“Limitations among others in the form of non-tariff barriers including market access, discriminatory trade practices, and negative perception have recently escalated against the Malaysian palm oil industry that offers a better competitive advantage over other edible oils,” said Zuraida in an address to the Palm Oil Trade Fair and Seminar (POTS) held in Tehran, Iran.

On average, palm oil exports played a role in the RM102 billion revenue last year. It constituted a 40% increase from RM73 billion in 2020.

The Iranian minister specified that India remains the leading Malaysian palm oil importer with over 3.5 million tons. Other importers include the Philippines, Pakistan, Turkey, and the Netherlands.

Benefits from Indonesia’s New Export Policy

Because of Indonesia’s new export policy, Malaysian palm oil growers will benefit through higher crude palm oil (CPO) prices. The new export ruling took effect on January 27 of this year. It made a huge domestic CPO price gap between Malaysia and Indonesia. Since its implementation, the price per ton was RM1,132. On February 3, the price was RM246 to RM1,378 per ton.

Image Source: CEphoto, Uwe Aranas/Wikimedia Commons (CreativeCommons Attribution-Share Alike 3.0 Unported)