Desire for détente is not enough to reignite Malaysian palm oil exports to India

Reuters KUALA LUMPUR/MUMBAI | Updated on March 05, 2020

File photo   -  istock/slpu9945

Within hours of the installation of a new prime minister on Sunday, a senior lawmaker called for a “renegotiation” of relations with India.

The ousting of Malaysia’s former Prime Minister Mahathir Mohamad, whose criticisms of India’s Kashmir policy damaged the palm oil trade between the nations, has kindled hopes among Malaysian exporters for a rapid restoration of ties.

But political rhetoric alone will not restore full Malaysian palm oil flows to top market India any time soon, traders say as palm prices within India are high, compared to other rival oils, to encourage a sharp uptick in wholesale demand.

Malaysian supplies of palm oil to India have slowed to a trickle since Delhi adopted a hardline stance after Mahathir criticised India in September. Exports to India for the last five years plunged 91 per cent in February to 29,269 tonnes from a year earlier, according to Refinitiv assessments.

In sign of how important it is to Malaysia to restore ties, within hours of the installation of a new Prime Minister on Sunday, a senior lawmaker, who expected to be in the new cabinet, called for a “renegotiation” of relations with India.

High prices

Malaysian industry players welcomed the move, but Indian traders said prices must also fall further due to palm oil's relatively narrow price spread with rival oils.

The soybean-palm oil spread in India averaged ₹3,929 ($53.42) a tonne from January through February, compared with ₹13,150 ($178.79) a year ago, according to Solvent Extractors Association (SEA) of India data.

“The narrow gap between soft oils and palm oil has been encouraging refiners to buy more soyoil and sunflower oil than normal,” said BV Mehta, SEA executive director. “A spread of less than $100 per tonne between palm oil and soft oil always makes imports of soft oil attractive for Indian refiners.”

India’s palm oil imports in the first quarter of the 2019-20 marketing year, which started on November 1, fell 14 per cent from a year ago to 2 million tonnes, while combined imports of soyoil and sunflower oil jumped 26 per cent to 1.36 million tonnes, SEA data showed.

Wooing India

The Malaysian Palm Oil Association — a group representing growers — is prioritising diplomatic efforts to woo India, chief executive Nageeb Wahab said.

However, Delhi will need to its soften its stance on Malaysia, and the price differential between palm oil and soyoil will need to widen to get Indian buyers on board, Sathia Varqa, co-founder of Singapore-based Palm Oil Analytics said.

Malaysia’s benchmark palm oil futures have dropped more than 20 per cent since the start of 2020 to 2,478 ringgit ($594.96) on Thursday, retracting to November levels, as top buyers India and China slow purchases amid the coronavirus epidemic.

Published on March 05, 2020

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