Palm oil trade with India looking good again

India agreed to buy 200,000 tonnes of palm oil from Malaysia last week.

PETALING JAYA: A palm oil analyst foresees prospects for Malaysian palm oil exports to India continuing to improve following reports that importers in the South Asian country last week contracted 200,000 tonnes of the commodity.

Singapore-based Sathia Varqa told FMT Malaysian producers would benefit greatly considering that the price of crude palm oil was now hitting RM2,300 a tonne.

He attributed the resumed demand from India to the change of government in Malaysia three months ago.

Indian purchases were affected after former prime minister Dr Mahathir Mohamad criticised New Delhi over several issues, including its policy on Kashmir and its controversial citizenship law.

Sathia said the crude palm oil price could reach RM2,400 a tonne if India and China were to sustain their demand.

“This looks likely to happen as both countries ease lockdown measures and resume stocking up,” he said.

“India’s edible oil stocks are now very low and have been at deficit levels for 11 months straight on a year-on-year basis.”

Earlier this week, the Malaysian Palm Oil Board voiced confidence that the price would hit between RM2,300 and RM2,400 per tonne in the next few months.

Sathia said Malaysia had an edge over Indonesia because Indonesian palm oil exports are subject to export levies which have increased by US$5 to US$55 while Malaysia’s palm oil export tax will be reduced to 0% from the current 4.5%.

However, he said the price would likely drop in the last quarter of the year with the peaking of production and the increase of stocks.

Sathia said the government’s plan to resume the B20 biodiesel programme in September after initially calling it off due to the movement control order would help with the demand for palm oil.

“But whether this will be feasible is another matter given the low price of crude oil and the high price of palm oil, which means the cost of producing biodiesel is high.”

He estimated that at current prices, the government would need to subsidise the biodiesel programme by US$400 million to match diesel prices.

If the concern was to sustain demand, he said, the government should opt for bilateral trade agreements, discounts for selected developing markets, setting up a financing mechanism to make biodiesel more sustainable and aggressively promoting palm oil use.

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