Most palm oil operations to shut down following lockdown

KUALA LUMPUR: Malaysia will be closing most of its palm oil operations as the country shutters non-essential business in an effort to fight the spread of the coronavirus, according to the Malayan Agricultural Producers Association.

The world’s second-largest producer will be halting operations at plantations, mills and factories for two weeks starting Wednesday, the trade group said. The government order will exclude palm oil refineries, which process crude palm oil into edible oils used in cooking oil, ice cream and margarine, as well as non-edible oils used in detergent, lubricants and biodiesel, the group said.

The lockdown risks roiling a key source of revenue for Malaysia, which CIMB estimates at US$370 million in lost sales, and could cause prices to spike as supplies of the most-used vegetable oil tighten.

This decision will have dire consequences on the industry and the livelihoods of 650,000 smallholders, a separate group representing growers said on Tuesday.

Though the trade association said most palm operations will be closing, the government hasn’t yet confirmed the move. The National Security Council, which manages policies related to security, did not name the palm oil sector as an essential business in a list of services that are allowed to operate when it released a note on Tuesday.

The Malaysian Palm Oil Association said it appealed the government order but was rejected.

However, palm oil operations in Sarawak, the country’s biggest palm-growing state, will be exempt, according to the region’s plantation owners’ industry group.

“Plantations in Sarawak will be allowed to operate in locked-down conditions in their low-risk isolated areas with strict monitoring” by state authorities, according to Sarawak Oil Palm Plantation Owners Association Chief Executive Officer Andrew Cheng.

Malaysia’s crude palm oil supply will suffer a loss of about 708,500 tons if plantations are not allowed to operate, and stockpiles in the country may fall to 1 million tons by end-March, according to Ivy Ng, CIMB’s regional head of agribusiness research.

The government decision could cause “a spike in crude palm oil prices given the tighter-than expected supply and benefit other palm oil-producing nations like Indonesia and Thailand,” Ng said.

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