The purchases might be shifted towards Indonesian palm oil which has cheaper pricing than Malaysian palm oil. — Reuters photo
KUCHING: There is weakening demand growth for crude palm oil (CPO) from India as the Indian government raised additional tariff rate of five per cent on Malaysian refined palm oil on September 4, 2019 to 50 per cent.
This is predicated on the fact that the purchases might be shifted towards Indonesian palm oil which has cheaper pricing than Malaysian palm oil, highlighted the team at MIDF Amanah Investment Bank Bhd (MIDF Research).
“The underperformance from the region could be also due to the halting of purchases by some Indian buyers in fear of a trade ban on Malaysian palm oil over Kashmir issue as the Mumbai-based Solvent Extractors’ Association of India has called for a ban,” it added in a sector outlook yesterday.
“This was manifested through a sharp decline of 29.2 per cent month-on-month (m-o-m) of exports to India.
“However, on a year-to-date basis, the 10MCY19 export demand growth remains robust at 14.1 per cent y-o-y, underpinned mainly by India due to previous preferential tariff trade agreement and China’s larger vegetable oil demand.”
“Moving forward, we are of the view that export demand to largely remain stable in coming months.
“We expect the expected strengthening demand from China for restocking activities for the major Chinese New Year festival in January 2020 will help to partially offset the expected decline in export from India.”
Other figures include October’s CPO production level coming in lower than anticipated at 1.8 million metric tonnes (MT) amidst the typical peak production cycle of August, September and October.
MIDF Research said this was possibly due to the dryweather conditions in August and September 2019 and higher yields at the start of the year which may have slightly altered the regular output cycle.
It was also worth noting that October 2019 represents the first month of decline on a sequential basis after three consecutive month of increase.
“This could potentially indicates that the palm’s high output cycle likely ended in September 2019,” it explained MIDF Research.
Meanwhile the team at Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw CPO production dropping throughout Peninsular Malaysia, Sabah and Sarawak by 12.2, 6.4 and 2.9 per cent m-o-m to 887,000MT, 476,000MT and 432,900 MT respectively.
“We believe production is likely to slow down further in the next few months given the monsoon season,” it said in a separate note.
“Overall, Malaysia’s CPO production for the first 10 months of 2019 was up by 7.1 per cent y-o-y to 17 million MT, underpinned by improving FFB yields and CPO oil extraction rates throughout Malaysia.”
CPO inventory in October also fell by 14.4 per cent year on year (y-o-y) to 2.3 million MT – the level last seen in July 2019.
This was mainly attributable to the lower-than-anticipated output of 1.8 million which translates into a decline of 8.6 per cent y-o-y amidst the typical seasonal higher production period and a steady export demand of 4 per cent y-o-y to 1.6 million MT.