India's palm oil ban will spark price war with Indonesia: Malaysian industry association

India's palm oil ban will spark price war with Indonesia: Malaysian industry association

Malaysia is the second-biggest producer of palm oil in the world
Malaysia is the second-biggest producer of palm oil in the world. (Photo: AFP/Mohd Rasfan)

KUALA LUMPUR: India's restrictions on imports of refined palm oil will lead to a loss of market share for Malaysia and spark a price war with rival supplier Indonesia, a Malaysian industry association said on Thursday (Jan 9).

India, the world's biggest edible oil buyer, issued a notification on Wednesday amending imports of refined palm oil to "restricted", a move that industry sources said amounted to an effective ban.

The move was seen as punishing Malaysia, India's main supplier of refined palm oil, for criticism of its policies by Mahathir Mohamad, the 94-year-old outspoken prime minister of Muslim-majority Malaysia. Indonesia is the world's biggest exporter of crude palm oil.

READ: Malaysia's Prime Minister Mahathir stands by Kashmir comments despite India palm oil boycott

The Palm Oil Refiners Association of Malaysia (PORAM) said the move meant Malaysia would now have to compete on crude palm sales to India, where Indonesia has traditionally been more cost competitive.

"This puts Indonesia and Malaysia at loggerheads. There will be a price war between Indonesia and Malaysia, and we are at the losing end," said PORAM Chairman Jamil Haron told Reuters.

"We can still sell crude palm oil, but now we need to compete with Indonesia."

Haron said the restrictions on refined palm oil could be in the form of quotas and more regulations.

Malaysia last year overtook Indonesia as India's biggest palm oil supplier after it won a lower duty for refined palm oil imports.

READ: Malaysia to study impact of India's planned trade action after Mahathir's Kashmir comments

READ: Malaysia offers to increase imports from India after Kashmir row

The Southeast Asian neighbours account for 85 per cent of the global palm oil production. Palm oil is Malaysia's biggest agricultural export, accounting for 2.8 per cent of its gross domestic product and 4.5 per cent of total exports.

A Kuala Lumpur-based trader, who did not want to be named citing company policy, said Malaysia's exports would start falling from end-January after current contracts end.

Malaysia exported an estimated 3.9 million tonnes of palm oil to India in 2019. Of this 2.04 million tonnes was palmolein which is used as a cooking agent, according to Refinitiv data.

READ: India resumes buying Malaysian palm oil as Kuala Lumpur offers discount - traders

PORAM members include top industry players including Sime Darby Plantation, Cargill Palm Products, FGV Refineries, IOI Edible Oils and Wilmar Edible Oils.

Malaysian Palm Oil Association Chief Executive Nageeb Wahab said the curbs on refined palm oil exports would benefit Indian refiners.

Mahathir said in October India "invaded and occupied" Kashmir, a disputed mainly Muslim region also claimed by Pakistan. Last month, he said India was stoking unrest with its new religion-based citizenship law that excludes Muslims.

Source: Reuters/jt