Malaysia palm oil producers to hunt for new markets, could look to Africa

[KUALA LUMPUR] Malaysian palm oil producers could be forced to find new customers in places like Africa as rival exporter Indonesia increases its dominance of major markets such as China and India due to cheaper prices and a more-favourable tax system.

Malaysia has long-trailed Indonesia as the world's No 2 producer and exporter of the edible oil, used in everything from chocolate to soap, mainly because of lower land and labour costs in its larger South-east Asian neighbor.

But the introduction of more competitive levies on palm exports from Indonesia in July last year has further entrenched that country's dominance of export markets, according to analysts and industry officials.

"In the long run, we have to work very hard to secure other markets which Indonesia is not competing with us in. Indonesia will go to the big markets like China, Pakistan and Bangladesh," Mohammad Jaaffar Ahmad, the head of the Palm Oil Refiners Association of Malaysia, told Reuters earlier this week.

"If you are no longer competitive you have to look for other small market outlets like countries in Africa. Demand is still there but the market is more difficult and risky."

Africa is the third largest consumer market for palm oil after South-east Asia and South Asia. It accounted for about 13 per cent of Malaysian shipments last year, with Benin, Nigeria and Tanzania as key export countries.

"(Indonesia is) a much bigger player, it is a volumes game in this picture," said David Ng, derivatives specialist at Phillip Futures in Kuala Lumpur.

Malaysian palm exports totalled 17.5 million tonnes in 2015, 9 million tonnes less than Indonesia's.

"Pakistan and Bangladesh are emerging quite substantially in palm oil demand and they are price-sensitive, so they will start shifting to Indonesia along with China and India," Mr Ng added.

Indonesian refined, bleached and deodorised (RBD) crude palm olein has this year been selling at a discount of around $10 to $20 to average Malaysian prices, traders said. Olein is the fluid part of palm oil.

Chinese imports of Malaysian palm fell 14.6 per cent in 2015 from the year before to 2.4 million tonnes, while its purchases from Indonesia jumped 40 per cent to 3.4 million tonnes.

Palm production is a key part of Malaysia's economy, accounting for nearly 6 per cent of its total exports last year.

REUTERES