KUALA LUMPUR: The Covid-19 pandemic will not have a large impact on the nation’s oil palm industry as it continues to be supported by local and international demand, commercialisation of downstream products, exploration of new markets as well as government initiatives.
Since the outbreak began in Wuhan, China, global markets have plummeted, forcing governments to reduce national expenditures and introduce stimulus programmes, while central banks have lowered the overnight policy rates (OPR) to support economic growth.
Palm oil was one of the commodity sectors affected when China – one of its biggest buyers – reduced its imports of palm oil and palm oil products, causing crude palm oil (CPO) prices to plunge.
In early January, CPO price rose to a high of RM3,134 per tonne but on March 23 it fell to RM2,330 per tonne, the lowest since the 2008 global financial crisis.
Year-to-date, the plantation index on Bursa Malaysia saw a decline of 25.3%.
The industry’s performance has affected close to one million smallholders whose livelihoods are dependent on the industry.
Although no one knows just how long the situation would go on, commodity analysts remain optimistic that it would not last for very long and that the industry would continue to support the nation’s economy.
Demand remains
With the imposition of the Movement Control Order (MCO) in an effort to curb the spread of Covid-19, most people have had to put a stop to their regular daily routines and remain at home, said Primary Industries and Commodities Minister Datuk Dr Mohd Khairuddin Aman Razali. When this happens, “they consume more palm oil and oil palm products,” he contended.
Palm Oil Analytics owner and co-founder Dr Sathia Varqa said the panic buying of essentials like edible oils as well as oleo-chemical products such as personal and home care hygiene products will result in a sharp increase in March’s domestic consumption.
“We expect the domestic consumption to do well again in March, after it increased by 16.29% month-on-month in February,” he said.
However, given the general slowdown in movements and activities, logistic services such as the transportation of CPO from mills to refineries and to ports or packaging locations are also affected, leading to slower movement and lower export volume in the month, he said.
Based on the Malaysian Palm Oil Board’s (MPOB) data, exports of palm oil in February 2020 depreciated by 10.81% to 1.08 million tonnes from 1.21 million tonnes in January 2020.
China’s demand continues
Mohd Khairuddin said Malaysian palm oil is still in high demand in the food and energy industries in China, India and Europe.
In China, for example, palm oil is a major ingredient in the making of instant noodles and pre-packed food.
“Demand for pre-packed food such as instant noodles, frozen foods, wontons and rice balls had increased tremendously in February as the Chinese were under home quarantine, hence they needed to stock up on food,” he said.
According to a study by JD.com, China’s second-largest e-commerce platform, sales of instant noodles in China had more than tripled in the first 10 days of the 2020 Lunar New Year compared with the same period in 2019.
According to Mohd Khairuddin, palm oil remains as a top choice in China’s food industry due to its oxidative advantage and its outstanding heat stability as palm oil contains no trans-fatty acids and is not partially hydrogenated, making it the right choice for China in its efforts to reduce trans-fat consumption.
Recently, S&P Global Ratings (S&P) opined that China’s economy is on the mend after suffering an unexpectedly tremendous blow. For 2020, S&P lowered its forecast on China’s gross domestic product (GDP) growth rate to 2.9% compared with 4.8% previously, and projected that the nation’s economy would contract by 10% in 1Q20 compared with the same period in 2019.
However, it expects China’s year-on-year growth to improve by about8% and reach double digits in 1Q21.
Inadvertently, this will support demand for palm oil in the country, which has a population of 1.4 billion.
Seeking new markets
Mohd Khairuddin said the ministry will continue to explore new markets, in terms of establishing bilateral relations as well as international cooperation among industry players, with Morocco and Tunisia already identified as among the potential markets.
“Currently, they are using olive oil as their main vegetable oil. We can try to enter the market for industrial usage,” he said.
Egypt is also a potential market as its population is expected to increase to 100 million by 2021, and its local vegetable oil production can only meet 20%-30% of local demand.
The country also does not impose any duties on crude and refined oils.
“To explore new markets, we will be talking to major Malaysian industry players such as FGV Holdings, Sime Darby, KL Kepong and United Plantation on the establishment of international collaborations between the industry players in the countries,” said Mohd Khairuddin.
Meanwhile, MPOB director-general Dr Ahmad Parveez Ghulam Kadir expects demand for CPO to be higher from Africa, the Middle East and India ahead of the Ramadan and Eid ul Fitr celebration in April and May.
“Despite the current decline in export performance, the ministry aims to enhance diplomatic relationship with India, the largest consumer of Malaysian palm oil.
“The Indian envoy to Malaysia has met with the Prime Minister and Foreign Minister in a move to reset the relationship and strengthen bilateral ties,” he said, adding that the country’s export market could also be expanded to countries such as Russia.
Downstream boost
Mohd Khairuddin said the Primary Industries and Commodities Ministry (MPIC) also aims to strengthen the downstream industry to assist smallholders and SMEs. New products that could be highlighted include cosmetic products such as lip balm and yoghurt drinks.
“If we increase the number of downstream products, we will be able to reduce our dependence on CPO exports, while improving the livelihood of smallholders and SMEs,” he said.
On average, Malaysia exports about 20 million tonnes of CPO annually.
Workers in the plantation and commodities sector have been exempted from MCO and are allowed to continue their work under certain conditions.
The decision was crucial, as close to one million oil palm and rubber smallholders as well as five million Malaysians rely on the income from the oil palm and rubber industry value chain.
Malaysia’s total palm oil stocks fell by 4.2% to 1.68 million tonnes in February from 1.76 million tonnes in January.
Meanwhile, several government agencies and non-governmental organisations (NGOs) in the country’s commodity sector have come forward to contribute essential medical and protective items for health professionals and workers.
The Malaysian Palm Oil Association, Malaysian Rubber Export Promotion Council and Malaysian Rubber Glove Manufacturers Association have donated equipment such as ventilators, Covid-19 test kits, hand sanitisers, face masks and personal protective clothing worth RM5 mil to the Ministry of Health and NGOs.
Ministry’s way forward for 2020
Mohd Khairuddin, who had recently assumed the ministry’s portfolio, said he would continue the policies announced by the previous government and plans to make several improvements with regards to critical issues involving the oil palm industry.
“We are also in the midst of discussions with regard to the introduction of new policies,” he said, stressing that the implementation of the B20 biodiesel programme will continue.
Meanwhile, the ministry will continue with its efforts to ensure the oil palm industry’s sustainability in line with its commitment towards human rights and environmental conservation. – March 23, 2020, Bernama
