KUALA LUMPUR: A brewing diplomatic spat between India and Malaysia has got an unusual victim in the crossfire – palm oil.
New Delhi abruptly restricted imports of refined palm oils this month, apparently irked by Malaysian Prime Minister Tun Dr Mahathir Mohamad’s comments on steps taken by the administration of Indian Prime Minister Narendra Modi that affect Muslims in India. The South Asian country is the world’s biggest palm oil buyer and is a major market for Malaysia, the No. 2 producer.
While India didn’t publicly say the move was in retaliation to Dr Mahathir’s comments, the South-East Asian nation counts refined palm oil as an integral part of its economy and any loss in sales will deal a huge blow.
If India’s refined palm oil imports from the nation drops from about 2.6 million tonnes a year to reach 2018 levels, about 2 million tonnes of Malaysian processed products worth US$1.4bil (RM5.69bil) may need new buyers, said Khor Yu Leng, an independent economist with Segi Enam Advisors, who has published papers on Malaysia’s political economy.
Tensions between the two countries began in September when Dr Mahathir told the United Nations that India “invaded and occupied” Kashmir and later criticised India’s citizenship amendment act.
His comments made the Modi government uneasy and led to an influential processors’ group in Mumbai asking its members to avoid buying palm oil from Malaysia.
The Indian government has also informally told local importers to avoid purchasing crude palm oil from Malaysia, according to traders and industry officials, who asked not to be identified due to the sensitivity of the matter. The spokeswoman of the commerce ministry was not immediately available for comment.
Since then, many Indian palm oil buyers have started shifting to Indonesia amid concerns that Modi’s government may restrict purchases from Malaysia or hike import taxes.
The rift may not only hit Malaysia, but also hurt Indian consumers as suppliers from Indonesia have started charging a premium of US$15-US$20 per tonne over benchmark prices, traders said. Although, Malaysia on Friday said it will raise its export duty on crude palm oil to 6% in February from 5% a month earlier, analysts said it may come under pressure to cut the levy.
“If India doesn’t buy from Malaysia, the country has to find other buyers, ” said Oscar Tjakra, analyst at Rabobank International in Singapore. “Malaysia may have to change its export duties to remain attractive.”
Crude palm oil may average at RM2,950 per tonne in the first quarter and at RM2,750 in the April-June period, Tjarka said. That compares with an average of RM2,588 during the October-December quarter. — Bloomberg
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