China supply deal to boost demand for palm oil

Higher consumption: Palm oil fruit bunches are delivered to a mill in Bahau. Industry observers say the potential for higher palm oil consumption in China is bright with some 6.5 million tonnes imports envisaged by 2025. — Reuter

PETALING JAYA: Malaysia’s current high palm oil stockpile is expected to ease to a manageable level, given the latest commitment by China to import an additional 400,000 tonnes of local palm oil per year in the next five years, say local planters.

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

In recent years, both Malaysia and Indonesia have been grappling with the rising global palm oil inventory situation, which in turn has led to the lacklustre and downtrend in the crude palm oil (CPO) price performance.

The palm oil stocks in Malaysia currently stood at 2.92 million tonnes as at end-March, while Indonesia’s palm oil inventory is pegged between 4.5 million tonnes and 5.0 million tonnes.

Together, the two world largest producers of palm oil controls almost 80% of the world’s CPO production.

In China, palm oil makes up around 5.05 million tonnes or 58% of the country’s edible oil imports.

Of the total, Malaysia’s palm oil imports is around 1.9 million tonnes or 5% of China’s total edible oil consumption.

According to industry observers, China has started to slow down on its soybean imports, especially from the US due to the on-going trade war between the two countries.

Hence, the potential for higher palm oil consumption in China is bright with some 6.5 million tonnes imports envisaged by 2025.

When contacted, United Plantations Bhd chief executive director Datuk Carl Bek-Nielsen said “I believe that the initiatives taken by the Government to help reduce the high stocks by pursuing sales with China is certainly a strategic and wise move.

He told StarBiz that “With the outbreak of African swine fever, which will likely shrink the herd in China by about 30%, there will be every reason for palm oil demand to increase to replace the soybean oil.

“I am hopeful and see this move as most beneficial.”

Industry expert A.H. Ling concurred that an additional 1.9 million tonnes of local palm oil to be imported by China in five years period would be helpful in managing the current high palm oil stockpile situation.

“However, the volume (to be purchased by China) will not be big enough to influence the global market, especially with the continuous robust production growth from Indonesia in the next five years,” he pointed out.

Ling who is a director with Sandakan-based Gan Ling Sdn Bhd noted that “The palm oil stock figures given by GAPKI or the Indonesian Palm Oil Association is relatively low, which is less than 3 million tonnes.

“I personally believe that it (Indonesia’s palm oil stock) is much higher and closer to 4.5 million tonnes level.”

Meanwhile, a planter with a public-listed plantation company pointed out that China should be able to purchase more than its latest commitment of about 400,000 tonnes of local palm oil per year in the next five years.

“This is due to the significant changes in China’s palm oil consumption structure, which are heavily influenced by the rapid development in food-related industries such as the fast food, industrial baking and modern food businesses.

“These sectors are registering strong growth between 6.6% and 8.58% annually,” he added.

China , Malaysia , palm oil , deal , demand , planters , stockpile ,


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