Diplomatic row throws Malaysia’s palm oil export to India into headwinds

20, Jan. 2020

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By Atul Ranjan

NEW DELHI, NNA – Malaysia’s palm oil export to India witnessed an “unprecedented” surge in 2019, but is suddenly facing uncertain prospects after the latter imposed import curbs following a diplomatic row with Malaysia, according to local edible oil industry body the Solvent Extractors’ Association (SEA).

The association said Malaysia's palm oil export jumped 104.5 percent from 1.91 million metric tons (MMT) in 2018 to 3.90 MMT in 2019, “riding on the free trade deal, the India-Malaysia Comprehensive Economic Cooperation Agreement (MICECA), under which Malaysian palm oil import was exempted from 5 percent safeguard duty”.

But this changed as India started imposing curbs following Malaysia's criticisms of the Indian government's action in Kashmir and a controversial amendment to its citizenship laws.

India has slapped a 5 percent safeguard duty on the import of Malaysian refined palm since Sept. 4, 2019 and placed the imports of refined palm oil from all countries, including Malaysia, under a ‘restricted’ category in January this year. India’s palm oil import from Malaysia is likely to fall in 2020 because of the curbs, said B.V. Mehta, executive director of SEA.

“India witnessed an unprecedented surge in the palm oil import from Malaysia mainly between Jan. and Sep. 4 thanks to the duty advantage under MICECA that came into effect from January 2019, but following the imposition of safeguard duty, the import from Malaysia came under pressure,” Mehta told NNA in an interview on Jan. 14.

He said imports fell after SEA issued an advisory in October last year to association members to refrain from importing edible palm oil from Malaysia amid a diplomatic row between the two countries after Malaysian prime minister Mahathir Mohamad made a sharp statement on India’s disputed region of Kashmir at the United Nations on Sept. 27.

India was upset after he accused India of illegally occupying Kashmir, which has been a bitter territorial dispute between India and Pakistan for decades.

B.V. Mehta, executive director, SEA, at his office in the western Indian city of Mumbai on Jan. 14, 2019. (NNA)
B.V. Mehta, executive director, SEA, at his office in the western Indian city of Mumbai on Jan. 14, 2019. (NNA)

“The import of RBD (refined bleached deodorized) palmolein from the ASEAN (Association of Southeast Asian Nations) region with Malaysia alone contributing over 70 percent, stood at 264,308 metric tons (MT) in Sept., which was drastically reduced to 118,487 metric tons in Oct.” Mehta said.

As ties between the two countries worsened, the Indian government put imports of refined palm oil under the ‘restricted’ category on Jan. 8 this year. This was after Malaysian PM Mahathir Mohamad questioned the Indian government for amending its citizenship laws, which was seen as anti-Muslim and had sparked deadly riots.

According to ratings agency CARE Ratings Ltd., crude and refined palm oils had enjoyed unrestricted imports in India as both had been placed in the free trade category.

Now that refined palm oil has been placed under the restricted category, companies need to procure an import license, said CARE in its Jan. 9 report. However, they can continue to freely import crude palm oil without any license.

The agency said that the move to put refined palm oil under the ‘restricted’ category is expected to boost support for the domestic refining industry, facilitating better utilization of existing production capacity.

“The capacity utilization of the local palm oil refineries has reduced from 60 percent to 40 percent in the last one year,” Mehta said.

India imports almost all of its palm oil requirements of around 9 MMT, including crude and refined palm oils from the ASEAN region mainly from Indonesia and Malaysia. While Indonesia is the largest supplier of crude palm oil, India imports most of its refined palm oils from Malaysia.

“Now with the refined palm oil in the restricted list, Malaysia will have to shift to exporting crude palm to India to remain a leading supplier of palm oil to the country,” he concluded.