With the higher tax rate, Malaysia will lose its preferential tariff treatment and India’s demand for palm oil will partly switch to Indonesian exports, according to Maybank IB Research.
As a result, Malaysia’s palm oil export growth could likely decline in September this year, after a strong performance in August.
Kenanga Research forecasts Malaysia’s palm oil export volume for September to fall by 8.2% month-on-month (m-o-m) to 1.59 million tonnes. In fact, the country’s palm oil exports have already seen a 15% m-o-m decline in the Sept 1 to Sept 10 period, based on cargo surveyor Intertek’s data.
“We believe the impact (from India’s higher tax) may not be felt in full in September, as some shipments have already been loaded onto the cargo ship and are in transit.
“The decline in exports to India should also be partially offset by demand from China, following its suspension on the purchase of United States agricultural products,” stated Kenanga Research, which is “underweight” on the domestic plantation sector.
It also said that crude palm oil (CPO) production in September 2019 is likely to grow by 8.9% m-o-m to 1.98 million tonnes.
India’s move to increase the import tax on Malaysia, which will expire on March 2, 2020, was introduced to reduce imports and boost India’s local refining activities.
For the month of August, Malaysia’s total palm oil exports rose 16.37% m-o-m and 57.6% year-on-year to 1.73 million tonnes.
Meanwhile, CPO stock fell 3.55% m-o-m to 1.29 million tonnes in August.
India remained the biggest purchaser, amounting to nearly 33% of the export volume last month.
This was partly due to stocking-up activities prior to the higher tax rate.
Maybank IB Research expects Malaysia’s CPO stockpile to rise to between 2.4 million tonnes and 2.5 million tonnes in September.
The research firm also believes that the country’s CPO stockpile will continue to climb for the rest of 2019, on the back of seasonally higher output and slowing exports.
It also expects the stockpile to close the year at around 2.8 million tonnes.
“With lower carried forward stocks into 2020 and slower growth in mature oil palm areas (due to the lack of new plantings in Indonesia and Malaysia since 2015), we expect the CPO price to strengthen further as supply tightens in 2020-21.
“Our CPO average selling price forecast of RM2,100 per tonne for 2019 and RM2,300 per tonne for 2020 is unchanged,” said Maybank IB Research in a note and left its “neutral” view on the plantation sector unchanged.
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