What would be the impact of restrictions on Crude Palm Oil import from Malaysia?

palm oil import

A price war between Indonesia and Malaysia is expected after restriction on for Crude Palm Oil import

India palm oil importers have effectively stopped purchasing from Malaysia after the government privately urged them to boycott its product following a diplomatic spat. The government had earlier issued a warning last week to the refined palm oil importers due to diplomatic reasons. Relations between the countries went sour after Malaysian’s Prime Minister criticized India’s action in Kashmir.

Indian importers are not buying crude oil or refined palm oil from Malaysia, sources familiar with the developments told Reuters.

A leading refiner informed that “There is no ban officially on crude oil imports from Malaysia, but nobody is buying due to government’s instructions. The buyers have to now import from Indonesia even though they have to pay a premium to prices in Malaysia.”

India is the largest importer of palm oil in the world, buying a total of about 9 million tonnes annually mainly from Indonesia and Malaysia.

The move from the government to limit the import of crude oil from Malaysia will effectively block imports from Malaysia could push up the country’s palm oil inventories. It could put pressure on its prices, which set the global benchmark for the oil.

One of the buyers said that we could import crude palm oil from Malaysia, but the government has warned: Don’t come to us if the shipment is stuck at port”. Nobody wants their shipments to get stuck.

India was the biggest importer of crude palm oil from Malaysia

India was the biggest importer of crude palm oil with 4.4 million tonnes of import as per the Malaysian Palm Oil Board data. The purchases could fall below 1 million tonnes even if some buyers make small shipments to fulfil old orders, the traders.

India not buying crude palm oil from Malaysia is heavily benefiting Indonesia, the world’s largest exporter of crude palm oil. Indian refiners and traders have shifted almost all palm oil purchases to Indonesia despite having to pay a premium of $10 per tone over Malaysian price.

Crude palm oil from Malaysia was available at $800 a tone on a free-on-board basis for the February shipment, compared to $810 from Indonesia.

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Palm oil prices have jumped 60 per cent in the last six months due to higher demand and drop in production.

India was importing mostly refined palm oil from Malaysia but they will purchase a lot of crude palm oil from Indonesia. This crude oil would need to be refined. India will build or re-open its refinery to refine the crude palm oil. This will create jobs in India and also it can help local companies.

The new movie from the centre is also expected to start a price war between Indonesia and Malaysia. India’s restriction of import of palm oil will lead to a loss of market share for Malaysia. Now, Malaysia will have to compete on crude palm oil sales to India, where Indonesia has traditionally been more cost-competitive.

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