Malaysia palm oil buyers boost imports from Indonesia in wake of El Nino

This picture taken on February 14, 2017 shows palm oil seeds loaded in boats in Kendawangan, West Kalimantan. Edible vegetable oil is a key ingredient in many everyday goods, from biscuits to shampoo and make-up, and growing demand has led to a boom in the palm oil industry in Indonesia, which is the world's top producer of the commodity. The palm oil industry has been repeatedly accused over the years of failing to protect workers' rights and tearing down protected rainforest to make way for plantations, prompting many companies to pledge greater efforts to improve working conditions and halt deforestation. / AFP PHOTO / Adek BERRY

KUALA LUMPUR: Malaysian buyers are ramping up imports of Indonesian palm oil as local supply battles to recover from the lingering impact of last year’s crop-damaging El Nino weather pattern.

Traders said world No.2 producer Malaysia was set to boost imports of palm oil and related products from top grower Indonesia by about 20,000 tonnes in March from typical monthly volumes of around 40,000-50,000 tonnes.

The two countries churn out nearly 90% of the world’s palm oil, used to make products ranging from cooking oil and chocolate to soap and cosmetics.

Some traders said shipments to Malaysia would likely remain at higher levels in April as they expect Indonesia to cut its export taxes on palm to around US$3 per tonne from US$18 currently. Jakarta sets the tax rate each month.

“Imports from Indonesia could reach 60,000-70,000 tonnes (again) next month, if the new tax kicks in,” said one trader, declining to be identified as he was not authorised to speak with media.

El Nino often brings scorching heat across South-East Asia that hurts palm’s fresh fruit yields. Indonesia’s trees are typically younger than Malaysia’s, however, so its crop can be more resilient and quicker to recover.

Benchmark palm oil prices were trading at over four-year highs in early January. Though they have since eased by around 10% to RM2,760 (US$623.31) per tonne, that is still way above levels seen at this time in 2016.

But further down the line, production is set to pick up again. Leading analysts have forecast a recovery in output by the second half of the year, driving down prices to around RM2,500 per tonne. - Reuters