Malaysian refiners most affected by India’s move

Forecast 2020: Maybank IB is keeping its average selling CPO price forecast for 2020 at RM2,300 per tonne. — Bloomberg

PETALING JAYA: India’s move to restrict the importation of refined palm oil are expected to put Malaysian refiners at a disadvantage, while Indonesia planters will likely to gain more market share.

According to Maybank IB Research, Indian importers will likely switch to crude palm oil (CPO) imports – buying more CPO from Indonesian planters which are more price competitive compared with planters from Malaysia.

“The switch will likely hurt local refiners as processed palm oil accounts for over 70% of Malaysia’s total exports in recent years, ” said the research unit in its latest regional plantation report.

Among the affected Malaysian refiners, Maybank IB believed that Sarawak Oil Palms Bhd stands to lose more given its sizeable refining capacity of 450,000 tpa in Bintulu, Sarawak and India being one of its key export markets.

Details of the exact restriction remain unknown at this juncture.

Maybank IB said: “Our channel check suggest the restriction can be in the form of permit requirement or licence to import.”

Clarification and licence approval/issuance are likely to take time.

“This will likely result in India importers switching to CPO and in a worst case scenario, switch to other refined oils, ” it added.

In addition, the situation will also result in “quicker” built-up of the Malaysian Palm Oil Board’s stockpile once the output starts to recover in the second quarter of 2020.

This will also cap CPO price upside as the world looks at Malaysia’s palm oil stockpile as a proxy to the region’s overall inventory in the absence of reliable palm oil data from Indonesia.

Positively, India has traditionally been a bigger importer of crude oils, which accounts for 81% to 85% of total imported vegetable oils.

Maybank IB is keeping its average selling CPO price forecast for 2020 at RM2,300 per tonne.

Meanwhile, UOB Kay Hian Research (UOBKH) said demand from India for CPO would remain despite its restriction on imported refined palm products into the country.

“We reckon that this will have a minimal impact on demand as India will shift the imports of refined palm oil to CPO.

“With this, we opine that this may benefit China with cheaper refined palm oil, where 70%-75% of China’s palm oil imports are refined palm olein, ” it added.

The research unit has also pegged the stock-to-usage ratio at 13.1 times in 2020.

“We expect global palm oil demand to increase 2% year-on-year (y-o-y) and supply to drop 0.2% this year.

“Hence, we forecast stock-to-usage ratio at 13.1 times this year from 16.9 times in 2019, ” added UOBKH.

The strong demand growth would mainly be driven by Indonesia’s B30 biodiesel mandate and lower production of other vegetable oils, mainly soybean and rapeseed.

The research unit is maintaining its CPO price assumptions at RM2,400 per tonne for 2020 and RM2,350 for 2021.