PUTRAJAYA: The government today urged upstream oil palm growers and downstream palm oil producers in Malaysia to join hands and reap the benefits of the void created following Indonesia's decision to halt its palm oil exports.
"While Malaysia sympathises with Indonesian palm oil players who will be impacted by significant shift in the demand-supply mechanics in the country, this is the best time for our palm oil players to enhance their innovation capabilities, while exploring possible strategies to meet a spike in demand by palm oil importing countries," said Plantation Industries and Commodities Minister Datuk Zuraida Kamaruddin.
As the world's largest producer of palm oil, Indonesia imposed the ban to lower the commodity's prices and further address its domestic supply shortages.
India is currently the biggest consumer of Indonesian palm oil – importing around 13.0 to 13.5 million metric tonnes of edible oils – of which palm oil makes up around 8 to 8.5 million metric tonnes (63%).
She said about 45% of this quantity comes from Indonesia while the remainder is sourced from Malaysia, which is currently the world's second biggest palm oil producer.
This has led to further tightening of a market already on the edge due to the Russia - Ukraine conflict and global warming issues.
The prices of palm, soybean, European rapeseed and even its Canadian GMO counterpart, canola oil, have since reached historic highs following Indonesia's action.
"Malaysia will be an instant beneficiary by virtue of being the second-largest exporter of palm
oil after Indonesia. However, scepticism persists on whether Malaysia is able to cope with various production challenges and constraints," said the minister in a statement today.
Daunting as it is to meet rising global demand amid a labour shortage, she said the ministry remains optimistic that Malaysia has what it takes to fill the gap in global palm oil supply based on its market trend analytics and projection.
"As palm oil prices will stay elevated supported by low inventory levels at both origins and destinations amid heightened price volatility, it is our hope that both the Malaysian upstream and downstream players seize the opportunity from Indonesia's absence to maximise their revenue
stream, hence earnings.
"After all, such opportunity only presents itself for a short-term given Indonesia will certainly re-look into its ban policy once both its domestic supply and pricing structure have stabilised," she said.
As market analysts expect the export ban to be lifted by the end of 2Q 2022 (around July), she said there is a likelihood that Indonesia will flood the global market with its inventory accumulated during the ban.
Given that the industry enters into its seasonal peak output period during this time of the year – coupled with the prospect of South Korea which is one of the fastest growing palm oil markets releasing its stockpile – this could trigger a sharp price correction.
"The prospect of both Russia and Ukraine releasing their rapeseed/sunflower oil stockpiles, if any, once their conflict has subsided or settled must also be looked into.
"Based on these possible risks, it is only logical that both Malaysian oil palm planters and downstream industry players go all out to take advantage of the current situation rather than to let such an opportunity slip away.
"MPIC wants to assure industry players that it is doing its utmost best to meet demand for migrant workforce especially from upstream players," added Zuraida.
She said in September last year, the authorities approved the recruitment of 32,000 migrant workers for palm oil plantations which culminated in the entry of the foreign workforce into the plantation sector in mid-February this year.
"Malaysia is now anticipating a new batch of foreign workers to arrive in May and June, hence overcoming further manpower crunch to harvest palm fruits which otherwise can cap production.
"Rest assured that the process to hire foreign workers has already begun under a special quota," she said.
On the longer term, she said MPIC projects palm oil production and exports to rise by 30 per cent by end-2022, which comes against the backdrop of Malaysia having reopened its international borders and as the country began transitioning to the endemic phase since April 1.
"No doubt that although production was low due to shortage of foreign workers at the height of the Covid-19 pandemic in 2020, things are gradually returning to normal.
"With the workers coming back, production levels will rise and Malaysia is on track to meet global demands," added Zuraida.