Malaysian palm oil imports from neighbouring producer Indonesia almost doubled in the past month and the import trend looks set to extend throughout November, despite local stocks that are near historical highs, industry sources said.
Traders, analysts and importers told Reuters that high output and inventories are forcing Indonesian sellers to lower prices of the edible oil as demand remains weak, making the shipments cheaper than Malaysian oil even with shipping costs.
Malaysian palm oil imports, which are typically around 40,000-60,000 tonnes a month, touched a three-year top of 117,269 tonnes in October, based on the latest government data.
“Indonesian price discounts to Malaysia are very large. Palm oil at (some of the smaller ports) are at an even sharper discount, so they push it to Malaysia,” said a Singapore-based palm oil trader.
“Malaysia is importing because it is cheaper than the local price. In November also we will see similar import volumes,” the trader said.
Benchmark palm oil prices have dropped more than 20% this year, as high import duties from key buyer India and weak emerging market currencies curb demand.
Malaysian palm oil fell below RM2,000 a tonne for the first time in three years on Wednesday, and was down 1.7% at RM1,973 (US$470.38) a tonne at the close of trade.
Rising stocks due to seasonal output gains have also weighed on prices, but traders say Indonesian prices have declined more than Malaysia’s, as top global producer Indonesia has higher inventories and output to offload.
They estimate that Indonesian crude palm oil is currently cheaper than Malaysia’s by US$7-US$10 per tonne.
“Indonesia’s price discount, which was quite steep in October, has narrowed so far in November, but stocks are building up which will cause more price pressure,” said a Malaysian crude palm refiner.
“As Indonesia’s production is double of ours, they have to be aggressive in their selling,” he said.
Indonesian palm oil prices could remain low until the year-end on strong output, as harvesting activities continue despite fresh fruit bunch prices falling close to cost of production, said an Indonesian planter.
Fruits would rot if left unharvested, the planter explained, leaving trees prone to fungus that cause diseases.
“We’ve seen high production since the Eid holidays and production is still unusually high. Because of that, port congestion remain a concern and tanks are still full,” he said.
