China recently committed to importing an additional 400,000 tonnes of local palm oil every year for the next five years. it is part of there negotiation between Malaysia and China at the end of the revised East Coastal Rail Link project.
Malaysia currently has a high palm oil stockpile and China's import is expected to reduce it to a manageable level. Malaysia and Indonesia compete with the increasing global palm oil inventory situation. Their high inventory led to the lackluster and downtrend in the crude palm oil price performance.
Malaysia's palm oil stocks are currently around 2.92 million tons during the end of March. Indonesia keeps between 4.5 million tons and 5.0 million tons.
The two nations are the largest producers of palm oil that contributes 8- percent of the world's crude palm oil production. The imports of palm oil of Malaysia are estimated at 1.9 million tons which is 5 percent of the total edible oil consumption of China.
Observers in the industry said that China started to decrease its soybean imports especially those that are from the United States because of the on-going trade friction between the two nations. the condition adds to the potential for higher palm oil consumption in China. Projections believe that China will consume 6.5 million tons of palm oil by 2025. Datuk Carl Bek-Nielsen, chief executive director of United Plantations Bhd. Said that he believes that the initiatives taken by the Government to help reduce the high stocks by pursuing sales with China is certainly a strategic and wise move.
Mr. Bek-Nielsen also said that with the outbreak of African swine fever, which will likely shrink the herd in China by about 30%, there will be every reason for palm oil demand to increase to replace the soybean oil.
According to A.H. Ling, an industry expert, the additional 1.9 million tons of local palm oil will be imported to China in five years period would be helpful in managing the current high palm oil stockpile situation in Malaysia. He pointed out that the volume to be purchased by China will not be big enough to influence the global market, especially with the continuous robust production growth from Indonesia in the next five years.
He also noted that the palm oil stock figures given by GAPKI or the Indonesian Palm Oil Association is relatively low, which is less than 3 million tonnes and he personally believes that it is much higher and closer to 4.5 million tonnes level.
