India may curb palm oil imports from Malaysia

The Indian government is considering restricting imports of palm oil and other goods from Malaysia, in an attempt to send signal of its displeasure to Malaysian authorities. India is Malaysia’s largest palm oil exports destination, which accounted for 28% of the latter’s palm oil exports in 9M19 (vs. 16.5% in 9M18). If it materialises, the news is negative to Malaysian planters in the near term, as it would take time for Malaysian planters to find other replacement markets to fill the vacuum from India. Over the longer term, we believe the impact will be less detrimental, as it is unlikely for India to ignore Malaysian palm oil completely, given its sheer demand for edible oil. We are maintaining our average CPO price assumptions of RM2,100/tonne for 2019 and RM2,200/tonne for 2020, as well as Underweight stance on the sector.

NEWSBREAK

India is considering to restrict palm oil import from Malaysia. According to news reports, the Indian government is considering to restrict imports of palm oil and other goods from Malaysia, in an attempt to send signal of its displeasure to Malaysian authorities. According to news reports, India is planning to substitute Malaysian palm oil with supplies of edible oils from countries such as Indonesia, Argentina and Ukraine.

World’s largest importer of edible oils. India is the world’s largest importer of edible oils (of which palm oil accounts for nearly 2/3 of its total edible oil imports). We note that India is Malaysia’s largest palm oil exports destination, which accounted for 28% of the latter’s palm oil exports in 9M19 (vs. 16.5% in 9M18).

HLIB’s VIEW

Negative, if it happens. At the time of writing, the Malaysian government has yet to receive “official confirmation” from India on the abovementioned news. If it materialises, the news is negative to Malaysian planters in the near term, as it would take time for Malaysian planters to find other replacement markets to fill the vacuum from India. Over the longer term, we believe the impact will be less detrimental, as it is unlikely for India to ignore Malaysian palm oil completely, given its sheer demand for edible oils.

Forecasts. We maintain our projected average CPO price assumptions of RM2,100/tonne in 2019 and RM2,200/tonne in 2020.

Sector rating. We maintain our Underweight stance on the sector, given its pricey valuations

Source: Hong Leong Investment Bank Research - 21 Oct 2019