PETALING JAYA: Plantation Industries and Commodities deputy minister Datuk Seri Dr Wee Jeck Seng said Indonesia’s move to ban exports of palm oil would have a huge impact on Malaysia as the second largest producer of the commodity.
Wee said that the ministry would have to study the matter closely and look at the long and short-term effects on Malaysia.
“In the short term, the price of palm oil is expected to see a sudden huge spike. On top of that, Malaysia, as the second largest producer of palm oil after Indonesia, would have to now fill in the gap in demand.
“With the issue of lack of manpower that we are facing, there is a limit on the volume of palm oil we could produce and export. It will be a challenge for us to cope with the demand,” he said, adding that Malaysia produced some 18 million tonnes of palm oil in 2021.
He was speaking to reporters during a buka puasa event with the media and representatives from suraus and mosques in Tanjung Piai, Johor.
On the long-term effects, Wee said the price of palm oil-based products would increase as the cost to produce the commodity rises.
“At the moment, existing mechanism, including crude palm oil (CPO), crude palm kernel oil and refined bleached deodorised palm kernel oil export taxes, is seen to be able to protect the competitiveness of the local palm oil industry in the global market.
Malaysian Palm Oil Board (MPOB) director-general Datuk Dr Ahmad Parveez Ghulam Kadir told StarBiz that “any policy changes by Indonesia will definitely affect Malaysia as we are the second largest producer and exporter of palm oil after Indonesia.”
“However, since this is a new policy announced by Indonesia, the ministry will need to study the matter closely and come out with effective measures to balance out the global demand for palm oil.
“It is common for countries to come out with policies that are in the best interest of their citizens from time to time and we do not know if this policy would stay for long,” he said.
However, Wee noted that the policy would not effect the price of palm oil products in the country.
“The government has control over the price of cooking oil from palm oil. This will protect consumers in Malaysia from the impact of the global price hike of the palm oil.
“However, this also means that the government would have to absorb more cost for the subsides given for the palm oil with the increase of the cost of its raw materials,” he said.
Indonesia President Joko Widodo announced last Friday that exports of cooking oil and CPO would be suspended starting April 28 in a bid to stabilise prices in the country.
A shortage of cooking oil in the world’s largest palm oil producing country has led to soaring prices in recent months, triggering protests.
“The government prohibits the exports of palm oil used in cooking oil,” he said.
Meanwhile, industry players and experts shared similar views with Wee.
Malaysia is expected to be the biggest beneficiary from Indonesia’s move to ban its palm oil exports, according to them.
, Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd, FGV Holdings Bhd and United Plantations Bhd, is positive that the CPO prices will move up firmly.This will be an advantage to Malaysian planters, said MPOA chief executive officer Datuk Nageeb Wahab." src="https://apicms.thestar.com.my/uploads/images/2022/04/25/1563055.jpg" onerror="this.src='https://cdn.thestar.com.my/Themes/img/tsol-default-image2017.png'" style="width: 620px; height: 411px;">Meanwhile, the Malaysian Palm Oil Association (MPOA), whose members include IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd, FGV Holdings Bhd and United Plantations Bhd, is positive that the CPO prices will move up firmly.This will be an advantage to Malaysian planters, said MPOA chief executive officer Datuk Nageeb Wahab.
They envisaged that the local palm oil industry would be able reap higher export earnings this year, particularly in the next two to three months.
However, Indonesia’s export ban is widely speculated to be a short-term measure.
In 2021, Indonesia accounted for about 56% of the total global palm oil trade or 30% of the global oils and fats trade.
A potential knee-jerk reaction from the ban could also trigger a CPO price rally, according to plantation analysts.
The commodity could reach new records above the RM7,500 to RM8,000 per tonne levels, after stabilising at RM6,500 to RM6,700 per tonne recently. This is a boon for local plantation companies.
Malaysian Palm Oil Board (MPOB) director-general Datuk Dr Ahmad Parveez Ghulam Kadir told StarBiz that “any policy changes by Indonesia will definitely affect Malaysia as we are the second largest producer and exporter of palm oil after Indonesia.”
Indonesia’s CPO production is about 45 million to 46 million tonnes, while Malaysia’s output stood at 18 million to 19 million tonnes annually.
“The ban will definitely see most of the global palm oil demand switching to Malaysia,” he added.
However, Ahmad Parveez noted that Malaysia is facing an issue with palm oil supply due to the severe labour shortage.
“While realising the market size left by Indonesia (from its palm oil export ban), Malaysia may not be able to absorb much of the excess global demand,” he added.
Ahmad Parveez also said Indonesia could afford to ban exports given that the republic is a major world consumer of palm oil, apart from being a top global producer.
“In 2021, Indonesia’s palm oil consumption represented 22% of the total global palm oil consumption,” he said.
This huge consumption coupled with the record high CPO prices in 2022 saw soaring cooking oil prices and supply shortage in Indonesia.
So far, the Indonesian government’s measures, including the domestic market obligation on its palm oil producers and higher palm oil export levy this year, were not effective to securing a sufficient amount of cooking oil (palm olein) at an affordable price to the local consumers, Ahmad Parveez explained.
The palm oil export ban also reflected the seriousness of Indonesia in protecting its consumers from the negative impact of global price hike in palm oil and other vegetable oils.
Meanwhile, the Malaysian Palm Oil Association (MPOA), whose members include IOI Corp Bhd, Kuala Lumpur Kepong Bhd, Sime Darby Plantation Bhd, FGV Holdings Bhd and United Plantations Bhd, is positive that the CPO prices will move up firmly.
This will be an advantage to Malaysian planters, said MPOA chief executive officer Datuk Nageeb Wahab.
He also noted that the Indonesian government was under pressure to appease its public given the rising cost and supply shortage of cooking oil.
On the flip side, considering the significance of Indonesia’s palm oil in the global oils and fats market, Nageeb said “the recent development will further worsen the global supply-demand imbalance arising from the Russia-Ukraine conflict that had led to short age of sunflower oil while the severe drought in South America had caused poor soybean harvest.”
As a result, CPO prices as well as other major vegetable oil prices are expected to increase in the near term, he added.
Industry consultant M.R. Chandran said: “I believe that to some extent, the extreme decision to ban palm oil exports can be construed as a political one-upmanship.”
He also questioned the need for a full palm oil export ban when the Indonesian government could consider reducing its biodiesel blending mandate from B30 to B25 or B20.
“Why is Indonesia not considering reducing the biodiesel blend by 5% to 7% so as to make available the extra CPO in the short term for the domestic market is not understood.”
He expected the latest ban to hit major palm oil importing nations such as India, China, Pakistan, Bangladesh and the African countries, which are already reeling under high food prices.
Therefore, the palm oil export ban by Indonesia, even if it is for a short duration, would seriously impact the major edible oil consuming countries, he pointed out.
“Malaysia will benefit as our domestic consumption of palm oil products is only around 10% to 13% of the total annual production, while the rest is for the export markets,” he said.