Malaysia Eyes Africa to Sell Palm Oil

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KUALA LUMPUR (Reuters) – 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 favorable 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 labor costs in its larger Southeast 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 Southeast Asia and South Asia. It accounted for about 13 percent 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 totaled 17.5 million tons in 2015, nine million tons 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,” Ng added.
 
Indonesian refined, bleached and deodorized (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 percent in 2015 from the year before to 2.4 million tons, while its purchases from Indonesia jumped 40 percent to 3.4 million tons.
 
Palm production is a key part of Malaysia’s economy, accounting for nearly six percent of its total exports last year.

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