Argus Media (28/05/2020) - Malaysian palm oil suppliers are expecting an upturn in prices as tensions between their government and the world's biggest buyer India thaw, although they face resistance from Indian producers.

Crude palm oil (CPO) prices in Malaysia have already increased by more than $50/t this month to 2,267 ringgit/t ($520/t) yesterday as India began renewing purchases. They could reach 2,300-2,400 ringgit/t over the next couple of months, according to the Malaysian Palm Oil Board (MPOB).

But CPO values are still 30pc lower than at the start of the year, as Covid-19 lockdowns slashed demand as travel was curbed and restaurants shut.

India's reduced Malaysian palm oil consumption was exacerbated in October last year after then Malaysian prime minister Mahathir Mohamad criticised Delhi over its actions in Kashmir and a new citizenship law. But a change in Malaysia's government earlier this year eased the hostility and has improved relations between the two nations.

The MPOB estimated palm oil exports to India at just 96,000t between January-April compared with 1.63mn t during the same period last year.

Around 200,000t of Malaysian CPO has been possibly booked by Indian buyers for June-July loading, while more could be on the way with landed prices $15/t cheaper than from rival producer Indonesia.

Indonesian palm prices are being supported by its domestic 30pc biodiesel mandate, while export duties could rise by $5/t from 1 June to help subsidise this directive. Current export levies are $25/t when CPO is priced between $570-619/t and $50/t when the price is above $619/t.

But Indian oilseed producers are keen on protecting and enhancing their domestic industry while reducing their reliance on imports. These imports currently comprise 60pc of the country's 25mn t edible oil requirements, targeted to fall to just 45pc by 2024-25 when consumption is forecast at around 33mn t.

The Solvent Extractors Association (SEAI) of India is currently lobbying for a ban on refined palm oil and a 6pc hike in import duties for CPO to 50pc.

CPO and crude palm kernel oil imports fall by 24pc in April from a year earlier to 356,000t, provisional SEAI data showed, while refined palm oil olein purchases dropped by 87pc over the same period to 30,000t.

Easing Covid-19 restrictions and a return to the market by Muslim countries after the Islamic fasting month of Ramadan should help continue the headway Malaysian CPO prices have made in May. But this could still be stymied if the SEAI is successful in its protectionist goals.

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