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Experts in the industry agree that the restriction on palm oil shipments from Indonesia could be a positive signal for Malaysia.
According to a note from Glenauk Economics, Leo Huei Chen and Dr. Julian McGill predict that palm oil shipments from Indonesia, the world's largest producer, will remain constrained in 2024. This is due to unfavorable weather conditions and high production costs, which will lead to a production cut of 200,000 tons. This, in turn, will maintain low levels of stocks in Indonesia and support high prices of crude palm oil (CPO).
According to the Indonesian Palm Oil Association (Gapki), in May 2024, palm oil production in Indonesia decreased by 16% to 4.25 million tons compared to the previous year, and exports decreased by 12% to 1.97 million tons. Palm oil stocks in the country also decreased by 12% to 4.09 million tons in May.
In light of the limited palm oil shipments from Indonesia, it is expected that Malaysia will benefit, as consumers are likely to shift to Malaysian palm oil supplies. Ivy Ng Lee Fang, head of research at CIMB Investment Bank in Malaysia and the regional head of agribusiness research, told The Edge about the potential positive impact on palm oil exports from Malaysia and price growth.
David Ng, a trader at Iceberg X Sdn Bhd derivatives, noted that some Indonesian players are likely to start importing CPO from Malaysia due to the difference in taxes between the countries, which will also support CPO prices in Malaysia.
Furthermore, Glenauk Economics Leow and McGill noted that Indonesian FOB CPO prices are inflated compared to export prices from Malaysia. They predict a potential increase in CPO exports from Indonesia due to the narrowing processing margins because of high CPO prices.
According to the Malaysian Palm Oil Council, in August, the export duty on CPO remains at 8%, with the base price increasing to 3880.86 ringgit per ton. The Indonesian Ministry of Trade has set the base price for CPO in August at $820.11 or 3,802.37 ringgit per ton, with the export duty remaining at $33 per ton with an additional levy of $85 per ton.
CPO futures prices, up over 15% since the beginning of the year, peaked at RM4,197 on April 3 due to supply issues. Ongoing El Niño weather conditions worsen droughts and reduce rainfall, negatively impacting palm trees.
