Asia's expanding population hungry for palm oil

ASIA’S robust economic growth and hunger for vegetable oils will continue to drive demand for palm oil and keep prices buoyant at around RM2,600 per tonne. 

In an interview with Business Times, Malaysian Palm Oil Council chief executive officer Tan Sri Yusof Basiron said Asia is expected to consume more palm oil, particularly countries with high population such as China and India.

South Korea is an emerging market that has started to buy from Malaysia in a big way, thanks to a free trade agreement (FTA) that facilitates tax-free palm oil shipments. 

The following are excerpts from the interview:-

QUESTION: Last year, crude palm oil prices averaged at RM2,250 per tonne. In the first eight months of this year, it averaged higher at around RM2,500 per tonne. Where do you see palm oil prices heading for the rest of the year? Why?

ANSWER: This year, global vegetable oils supply had been rather tight.

Malaysia’s palm oil production until July 2010 has only seen a slight 0.7 per cent increment, due to the El Nino effect at the end of last year. Latest data from Indonesia show palm oil output may fall 10-15 per cent from last year's volume.

While the US foresees huge soyabean crop coming into the market from mid October, rape seed oil supply is badly affected by dry spell in Europe, Canada and China. According to Oil World, this year’s rape seed output is likely to fall 5 per cent to 56.9 million tonnes.

With less vegetable oils supply in the global market, stock-usage ratio (SUR) will go down. The lower the SUR, the more bullish the prospects for vegetable oil prices.

We must remember that petroleum prices also has an influence on palm oil pricing. Continued robust economic growth in India and China, and higher usage of vegetable oils in Europe and South America’s energy markets will keep palm oil prices buoyant. Assuming petroleum hovers at US$80 per barrel (RM248), we see palm oil trading in the RM2,500 to RM2,700 range.

Q: Malaysia started exporting palm oil to China in 1985. Since then, shipments have continued to grow. Is China likely to buy more than 4 million tonnes this year?

A: As the largest vegetable oil consumer in the world, China’s palm oil usage makes up 15 per cent of global consumption. Palm oil is the second most consumed there, after soyaoil.

This year, China has started to import more soyabeans instead of soyaoil. This is because the Chinese government wants more crushing activities domestically and more soyameal to feed its pig, cattle, dairy and poultry farms.

According to Oil World, China’s January-July 2010 oilseed imports went up 12 per cent to 32.15 million tonnes. On the contrary, imports of oils and fats fell 9 per cent to 5.38 million tonnes.

Although we see this situation prevailing, we’re not too worried. China has a big appetite for palm oil. According to Oil World, palm oil shipment from Malaysia, in the first seven months of this year, surged 17.2 per cent to 2.34 million tonnes. This was due partly to Indonesia raising tax on palm oil to as high as 4.5 per cent. In August, it was lowered to 3 per cent but raised to 6 per cent, this month.

As a result of Indonesia’s tax regime, Malaysia’s palm oil shipment to China expanded. Judging from this trend, we’re hopeful of achieving 5 per cent growth to 4.2 million tonnes this year.

Q: Malaysia’s FTA with Pakistan, which came into effect January 2008, has expanded palm oil shipments. Will Pakistan’s demand from Malaysia exceed 2 million tonnes this year?

A: Last year, we achieved a record high of 1.76 million tonnes in palm oil exports to Pakistan. Apart from the FTA, Malaysia’s investments in Port Qasim’s bulking and refinery facilities have helped secure steady demand.

The recent unfortunate flooding catastrophe in Pakistan have, somehow, compounded the need to balance its oils and fats requirement. 

In the first seven months of this year, Malaysia exported 1.2 million tonnes of palm oil to Pakistan, up 11 per cent from 1.08 million tonnes a year ago.  I believe we can achieve the 2 million-tonne export target, this year.

Q: After a 10-year decline, India bought more palm oil from Malaysia last year, surpassing the 1.35 million tonne level. From January-July of this year, however, the pace slowed. Is it still able to exceed 1 million tonnes for the full year?

A: India is now the world’s largest vegetable oils importer. There’s tremendous potential for higher imports considering its relatively low per capita consumption of just 14 kg. Palm oil already make up 75-80 per cent of its import basket.

Last year, India’s 1 million tonne-import from Malaysia was exceptional. Poor domestic crush margins, rapid consumption growth and a stronger Indian rupee against US dollars fueled the surge in imports. 

To date, India has bought around 700,000 tonnes of Malaysian palm oil. I’m optimistic that exports will, once again, exceed the 1 million-tonne level.

Q: South Korea is buying more palm oil from Malaysia. Any changes in vegetable oil tax regime brought on by bilateral trade agreements?

A: South Korea’s oils and fats consumption grew at 2.6 per cent in the past 10 years. Going forward, it will have to rely on imports as it is not able to grow enough oil crops for its own use.

Apart from conventional usage in the food and oleochemical industries, South Korea’s biodiesel sector has started to use palm oil as feedstock since 2007. With higher blending ratio of 2.0 per cent this year from 1.5 per cent in 2009, South Korea needs to import 100,000 tonnes more. 

In 2007, South Korea signed a FTA with the Association of Southeast Asian Nations (Asean), resulting in tax-free palm oil shipments, from 2009.

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