There has been significant noise between India and Malaysia about palm oil. This was apparently triggered by comments about Kashmir’s status at the United Nations General Assembly in September 2019 by Prime Minister Mahathir Mohamad (selected as the key teaspoon-a-day Malaysia palm oil advocate).

In the era of trade wars, specialists point to the ‘weaponisation’ of several commodity trades as a result of geopolitical issues emanating from the US-China trade war. In this case, sensitivities in India grew and reached a level that the Solvent Extractor’s Association, the key vegetable oil refiners association, issued a statement on 21 October 2019, urging its members to avoid Malaysia palm oil in solidarity with national issues.

New Delhi officials have denied any negative trade policy. Observers tell of Malaysia officialdom being more concerned about the trade balance and the fact that Malaysia is exploring buying more India buffalo meat and sugar to improve the negative trade balance with India.

But words keep flying. Bilateral issues include the extradition of wanted preacher Zakir Naik, a cause célèbre resident in Malaysia, as well as criticism of India’s new nationality rules.

To be sure, India needs palm oil, or other imported vegetable oils but none is so well priced, on average. So it may all seem a storm in a teacup while palm prices ramp up. Reuters reported an ongoing trade but at a discount to Indonesia palm oil prices. Usually, Malaysia palm oil trades at USD 15-20/tonne premium to Indonesia (largely on logistics), but a USD 5/tonne discount helped things along. This indicates a negative (relative) swing of USD 20/tonne or more at one point.

Malaysia palm producers could take this in their stride. They must be pleased that, despite such talk from its biggest buyer—on top of negative headlines about the palm trade outlook with the EU—the price of crude palm oil has been on a tear, rising from a low of about USD 450 (at mid-2019) to USD 750/tonne, a three year high. But watch out for how long its competitive position against other oils and its use in biodiesel are eroded.

Khor Reports stands by for this (already, India is cutting import taxes) and for possibly more geopolitical word parrying. In the meantime, we highlight eight major points and issues about the palm oil trade, the trade context, and our online-social media reading of the Malaysia palm oil flap in India!

Quick facts about palm oil exports to India

(Note: Trade figures rely on an export-basis reporting unless stated otherwise.)

#1 Indonesia dominates as India’s largest source of palm oils.

It supplies 60% of India’s total palm oil (crude and refined) needs in the last five years; Malaysia has a 38% market share. In 2018 alone, India imported 6.0 million tonnes of palm oil worth USD 5.5 billion, with Indonesia selling USD 3.8 billion and Malaysia selling USD 1.3 billion worth. For palm kernel oil (crude and refined), Indonesia is (again!) the majority supplier to India. With a 66% share in 2018, Indonesia sold USD 487 million worth, while Malaysia sold USD 243 million.

#2 India is (by far) Malaysia’s largest buyer of palm oil.

In the last five years, just over 20% of Malaysian palm oil went to India (tan-coloured wedge, below). The next biggest importers of Malaysian palm oil were China, Netherlands, Pakistan, Vietnam, USA, Japan, and the Philippines.

#3 Recent monthly data shows a boom in Malaysia refined palm exports to India.

Looking at monthly data for the Malaysia-India palm trade from June 2018 to June 2019, the value of the trade in crude palm oil (blue line, below) was relatively stable, with slight dips in February 2019 and June 2019.

The value of refined palm oil imports (red line) was about USD 25 million or much lower each month, and started to spike up after January 2019, reaching USD 200 million in February and May 2019. Palm kernel oil product imports (yellow and green lines) were relatively small throughout. 

#4 But Malaysia has lost a million tonnes of volume in India, 2014 to 2018.

However, the more recent rise of Malaysia exports is in the context of declining volume to India. Malaysia palm oil exports have fallen from over 3 million tonnes in 2014 and even higher in 2015 to around 2 million tonnes in 2017 and 2018. This is a major drop of 1 million tonnes by 2018. But look at the pick up in 2019 that so worried India refiners (look out for our future articles or ask us about this!).

It appears Malaysia was trying to claw back market tonnage with the Malaysia-India Comprehensive Economic Cooperative Agreement (CECA; reduced import duties on Malaysian palm products came into effect in January 2019), but it was flummoxed by the 5% safeguard duty (imposed in September 2019); the more recent trader tensions raise many further questions.  

Overall INdia-Malaysia Trade relationship

#5 India has a large (but narrowing) trade deficit with Malaysia.

Looking at overall trade relations, India has a trade deficit with Malaysia. This deficit was USD 6.3 billion in 2014, and it has been slowly declining (improving), with a deficit of USD 3.9 billion in 2018.

#6 India’s top trade items include fuel and palm oils, buffalo meat and more.

In 2018, India’s top imports from Malaysia included mineral fuels and oils (USD 2.8 billion), animal and vegetable oils (USD 1.4 billion), electrical machinery (USD 1.1 billion), machinery (USD 753 million), copper products (USD 599 million).

Meanwhile, India’s top exports to Malaysia in the same year are mineral fuels and oils (USD 2.4 billion), aluminium (USD 836 million), organic chemicals (USD 561 million), meat (USD 395 million) and machinery (USD 276 million).

India Public interest & SOCIAL MEDIA

#7 Late Sep and Oct 2019, India social media was a flutter.

#BoycottMalaysia garnered about 20,000 mentions in a month and palm oil—usually such a staid topic limited to the professional sphere—boomed with about 25,000 mentions; since the Kashmir controversy, it has attracted 80% higher interest in India social media than before in 2019 (note that these statistics are for a key segment in social media, but is not a full count, so there is likely even more mentions elsewhere). Top topics linked to palm oil include boycott, Kashmir and Mahathir.

For some reason, #BoycottMalaysia and ‘palm oil health’ (brown and pink lines) peaked at the end for September 2019 before another (slightly bigger) peak of social media mentions of palm oil and Kashmir and Mahathir (orange and purple lines) in mid-late October 2019. Social media indicators precede an awakening of public interest online (see #8). Fortunately, while there are India media articles that use negative words - like ‘disgusting’ and ‘toxic’ - they do not turn up in social listening indicators.

#8 Palm oil has broken out of a 2015-2018 lull in India online interest.

While Indonesia palm oil dominates the trade, it has done so pretty quietly (light green line). Malaysia palm oil (mid green line) attracts much more India public interest, while its volume has been struggling there. However, the highest is ‘palm oil India’ (dark green line), a topic we intend to explore later (note: there are incentives to plant oil palm in India). A low simmering topic is palm oil and health (pink line). The boycott topic (lighter orange line) is less prominent (in non-social media) online and should definitely be tracked via social media listening (see #7).

KHOR Yu Leng, 2 Jan 2020