Malaysia set to sell more palm oil to China

  • Business
  • Friday, 26 Apr 2019

Mahathir and Xi during Mahathir's visit to Beijing yesterday.

PETALING JAYA: Malaysia’s palm oil exports to China will likely see an additional 20% increase, or about 400,000 tonnes per year, following the latest palm oil supply memorandum of understanding (MoU) witnessed by Prime Minister Tun Dr Mahathir Mohamad and China’s Premier Li Keqiang in Beijing.

The additional palm oil purchase by China was part of the re-negotiation between Malaysia-China at at the conclusion of the revised East Coast Rail Link project.

According to industry observers, local palm oil exports to China are expected to jump by about 2.26 million tonnes in 2019 compared with 1.86 million tonnes recorded in 2018.

Under the signed MoU, an additional supply of a minimum of 1.9 million tonnes of palm oil to China over a five-year period, starting from 2019 with the volume estimated at RM4.56bil based on an average price of US$600 per tonne.

“This is a very interesting development as China imports of local palm oil has been on the downtrend in recent years.

“The average purchase price of US$600 per tonne CPO can be considered as a reasonably fair price considering the volatility in the current CPO prices,” said an industry source.

In 2018, China is Malaysia’s third largest palm oil export market at 1.86 million tonnes, after the EU at 1.91 million tonnes and India, the largest export market for Malaysia at 2.51 million tonnes.

Together with Pakistan, the Philippines, Turkey and the US, the top seven markets accounted for 9.31 million tonnes or 56.5% of Malaysia’s total palm oil exports in 2018.

Malaysia’s annual palm oil export volume to China shrank to below three million tonnes after 2015.

The volume was at 3.76 million tonnes in 2011, which was more than Indonesia’s 2.04 million to China.

But since 2015, Indonesia has overtaken Malaysia in terms of export volume of palm oil to China, with the former’s exceeding three million tonnes, while Malaysia’s dropped to 2.44 million tonnes.

On whether China’s additional purchase of local palm oil will to ease the current high inventory situation, an analyst with a local bank-backed brokerage said “I don’t foresee this will help to reduce the bloating global palm oil stocks situation (Malaysia and Indonesia) nor will it help to boost CPO prices higher to trade above RM2,400 per tonne level.”

News of China increasing its palm oil purchases from Malaysia is also not reflected in the trading of CPO futures for June, which ended RM13 lower at RM2,157 per tonne yesterday.

According to the analyst, the current palm oil stocks is currently still too high.

Malaysia’s palm oil inventory alone stood at 2.92 million tonnes as at end-March, while Indonesia is estimated at about 5 million tonnes.

“While the China (purchasing) factor is positive for CPO prices, there will not be a dramatic jump in prices simply because the global palm oil stockpile situation,” he added.

Another potential market-moving factor is on the news that China will invest about RM2bil to set up a biofuel plant in Malaysia.

“This move will likely help to reduce Malaysia palm oil stock in the near future given the ample supply of raw material for the biofuel plant here.”

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Malaysia , China , palm oil , sell , Mahathir , Xi , ECRL , MoU ,


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