25.03.2020 (The Edge Markets MY) - KUALA LUMPUR (March 25): The COVID-19 pandemic will not have a large impact on the nation’s oil palm industry as it continues to be supported by local and international demand, commercialisation of downstream products, exploration of new markets as well as Government initiatives.
Since the outbreak began in Wuhan, China, global markets have plummeted, forcing Governments to reduce national expenditures and introduce stimulus programmes, while Central Banks have lowered the overnight policy rates (OPR) to support economic growth.
The oil palm is one of the commodity sectors affected when China - one of its biggest buyers - reduced its imports of palm oil and palm oil products, causing crude palm oil (CPO) prices to plunge.
In early January, CPO price rose to a high of RM3,134 per tonne, but on March 23, it fell to RM2,330 per tonne, the lowest since the 2008 global financial crisis.
Year-to-date, the plantation index on Bursa Malaysia saw a decline of 25.3 percent.
The industry’s performance has affected close to one million smallholders whose livelihoods are dependent on the industry.
Although no one knows just how long the situation would go on, commodity analysts remain optimistic that it would not last for very long and that the industry would continue to support the nation’s economy.
Palm products remain in demand
Following the Movement Control Order (MCO) period, effective from March 18, a majority of the people have had to put a stop to their regular daily routines and remain at home to stop the spread of the COVID-19, said Primary Industries and Commodities Minister Datuk Dr Mohd Khairuddin Aman Razali.
“When they are at home, they would consume more palm oil and oil palm products,” he told Bernama.
Palm Oil Analytics owner and co-founder Dr Sathia Varqa said the panic buying of essentials like edible oils as well as oleo-chemical products such as personal and home care hygiene products will result in a sharp increase in March’s domestic consumption.
“We expect the domestic consumption to do well again in March, after it increased by 16.29 percent month-on-month in February,” he said.
However, given the general slowdown in movements and activities, logistic services such as the transportation of CPO from mills to refineries and to ports or packaging locations will also be affected, leading to slower movement and lower export volume in the month, he said.
Based on the Malaysian Palm Oil Board’s (MPOB) data, exports of palm oil in February 2020 depreciated by 10.81 percent to 1.08 million tonnes from 1.21 million tonnes in January 2020.
China's demand for palm oil continues
Mohd Khairuddin said the Malaysian palm oil is still in high demand in the food and energy industries in China, India and Europe.
In China, for example, palm oil is a major ingredient in the making of instant noodles and pre-packed food.
“Demand for pre-packed food such as instant noodles, frozen foods, wontons and rice balls have increased tremendously in February as the Chinese undergo home quarantines, thus they needed to stock up on food,” he said.
According to a study by JD.com, China’s second largest e-commerce platform, sales of instant noodles in China had more than tripled in the first 10 days of the 2020 Lunar New Year compared with the same period in 2019.
Mohd Khairuddin said palm oil remains as a top choice in China’s food industry due to its oxidative advantage and its outstanding heat stability.
He added that palm oil contains no trans-fatty acids and is not partially hydrogenated, making it the right choice for China in its efforts to reduce trans-fat consumption.
Recently, S&P Global Ratings (S&P) opined that China’s economy is on the mend after suffering an unexpectedly tremendous blow.
For 2020, S&P lowered its forecast on China’s gross domestic product (GDP) growth rate to 2.9 percent compared with 4.8 percent previously, and projected that the nation’s economy would contract by 10 percent in the first quarter of 2020 (1Q 2020) compared with the same period in 2019.
However, it expects China’s year-on-year growth to improve by about eight percent and reach double digits in 1Q 2021.
Inadvertently, this will support demand for palm oil in the country, which has a population of 1.4 billion.
The search for new markets and expansion of existing markets
Mohd Khairuddin said the Ministry will continue to explore new markets, in terms of establishing bilateral relations as well as international cooperation among industry players.
He said that Malaysia has identified Morocco and Tunisia as potential markets.
“Currently, they are using olive oil as their main vegetable oil. We can try to enter the market for industrial usage,” he said.
Egypt is also a potential market as its population is expected to increase to 100 million by 2021, and its local vegetable oil production can only support between 20 percent and 30 percent of local demand.
The country also does not impose any duties on crude and refined oils.
“In order to explore new markets, we will be talking to major Malaysian industry players such as FGV Holdings Bhd, Sime Darby, KL Kepong and United Plantation on the establishment of international collaborations between the industry players in the countries,” said Mohd Khairuddin.
Meanwhile, MPOB director-general Dr Ahmad Parveez Ghulam Kadir expects demand for CPO to be higher from Africa, the Middle East and India ahead of the month of Ramadan and Eid ul Fitr celebration in April and May.
“Despite the current decline in export performance, the Ministry aims to enhance diplomatic relationship with India, the largest consumer of Malaysian palm oil.
“The Indian envoy to Malaysia has met with the Prime Minister and the Foreign Minister in a move to reset the relationship and strengthen bilateral ties,” he said, adding that the country’s export market could also be expanded to countries such as Russia.
Downstream industry helps to boost local demand
Mohd Khairuddin said the Primary Industries and Commodities Ministry (MPIC) also aims to strengthen the downstream industry to assist the smallholders and the small and medium-sized enterprises (SMEs).
New products that could be highlighted include cosmetic products such as lip balms and yoghurt drinks.
“If we increase the number of downstream products, we will be able to reduce our dependence on CPO exports, while improving the livelihood of smallholders and SMEs,” he said.
On average, Malaysia exports about 20 million tonnes of CPO annually.
Commodities sector allowed to continue operating during MCO
Workers in the plantation and commodities sector have been exempted from the Movement Control Order (MCO), and are allowed to continue their work activities under certain conditions.
The decision was crucial, as close to one million oil palm and rubber smallholders, as well as five million Malaysians rely on the incomes from the oil palm and rubber industry value chain.
“There is a probability that the virus spread could affect the plantations and smallholders, as those who are considered as potential COVID-19 carriers are required to at least undergo quarantine for 14 days which will disrupt the harvesting activities.
“If this situation is prolonged, CPO production will be affected and it will also affect palm oil exports as Malaysia is currently facing tight supply to fulfil global demand,” Ahmad Parveez cautioned.
Malaysia's total palm oil stocks fell by 4.2 percent to 1.68 million tonnes in February 2020 from 1.76 million tonnes in January 2020.
Meanwhile, several Government agencies and Non-Governmental Organisations (NGOs) in the country's commodity sector have come forward to contribute essential medical and protective items for health professionals and workers.
The Malaysian Palm Oil Association, Malaysian Rubber Export Promotion Council, Malaysian Rubber Glove Manufacturers Association have donated equipment such as ventilators, COVID-19 test kits, hand sanitisers, face masks and personal protective clothing worth RM5 million to the Ministry of Health and NGOs
Industrial players have also stepped up measures to help curb the spread of COVID-19 by requiring employees who may have been exposed to the contagion prior to the enforcement of the MCO to self-quarantine.
MPIC’s way forward for 2020
Mohd Khairuddin, who had recently assumed the Ministry’s portfolio, said that he will continue the policies announced by the previous Government and plans to make several improvements with regards to critical issues involving the oil palm industry.
“We are also in the midst of discussions with regards to the introduction of new policies,” he said.
He added that the government would continue the implementation of the B20 programme.
Meanwhile, MPIC will continue with its efforts to ensure the oil palm industry’s sustainability in line with its commitment towards human rights and environmental conservation.