Malaysia Signs RM3.6 Billion Palm Oil Purchase Deal With China
2019 appears to be starting in the right direction for the Malaysian oil palm industry. In recent years, the Malaysian palm oil industry has faced rising challenges of restrictions in export and worldwide demand. The leading issue would of course be the European Union’s growing anti-palm oil sentiment, driven by allegations of deforestation and the industry being environmentally unfriendly.
Although Malaysia and other oil palm producing nations have stepped up their efforts to dismiss these allegations, the EU seems poised to limit and eventually phase out palm oil, especially in vehicles and machinery. As such, palm oil sales have to be focused elsewhere.
China: One of the Largest Palm Oil Market
China has been purchasing palm oil from Malaysia for a long time. With the EU market under threat, Malaysia has managed to convince China to increase their purchases. In part, China’s increasing demand of oil palm is due to a drop of soybean oil demand and the need for more vegetable cooking oils.
In addition to just cooking, palm oil in China will be used in other industries such as the chocolate making industry, food processing industry, pharmaceuticals, soaps and more. Currently, China is the second largest importer of palm oil after India.
China buys 50% more Palm Oil in 2019
On March 4th, 2019, Malaysian Minister of Primary Industries, Theresa Kok witnessed the signing of purchase intent documents involving three Chinese companies which will buy products from four Malaysian companies.
These purchases amounted to USD 891 million or about RM 3.5 billion. The following is a breakdown of the purchase deals, which total up to about 1.62 billion tons of palm oil:
- Yantai Tianmao Edible Ltd to purchase 100,000 tons of RBD palm stearin from Sime Darby Plantation
- Yihai Kerry (Shanghai) International Trade Co. to purchase 1.3 million tons of RBD palm olein from PGEO Marketing Sdn
- Yizheng Fangshun Industry Ltd to purchase 120,000 tons of RBD palm stearin from Cacao Paramount Sdn, unit of Teck Guan Group
- Yizheng Fangshun to purchase 100,000 tons of RBD palm olein from SOP Edible Oils
More Room To Grow
At the signing of the purchase intents during the Malaysia-China Palm Oil Business Forum, China’s ambassador to Malaysia, Bai Tian mentioned that there is still room for more purchases. He stated that China has not placed a ceiling on the amount of palm oil and palm oil products that China can import.
Among the new fields that China is looking into developing is biofuels and this of course calls for and increased supply of palm oils in the country. In total, China’s import of palm oil in Malaysia is set to grow about 50% year on year in 2019, as compared to the year before.
In addition to boosting exports of palm oil to China, Malaysia is also taking steps to cap the amount of land opened for oil palm growth, as an important step to allay fears in the EU about deforestation.
The increased demand for palm oil and declining reserves are serving to gradually increase and stabilize oil palm prices for 2019, which is good news for small holders in Malaysia. If you’re a smallholder, this is the time to work hard and make hay while the sun shines.