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Malaysia sees Strong Palm Oil Demand from India, China; but faces EU Disruption

During an industry conference on Tuesday, Malaysia’s Plantation and Commodities Minister highlighted the country’s anticipation of robust palm oil demand from key markets like India and China this year. Johari Abdul Ghani stated that the government is diligently striving for the acceptance of palm oil certification, emphasizing the need to address negative perceptions surrounding the edible oil. As the second-largest palm oil producer, Malaysia foresees Asia and Africa absorbing any surplus supply resulting from export disruptions to Europe following the implementation of the bloc’s new deforestation laws.

The European Union has implemented regulations preventing products associated with forest destruction from being sold in retail outlets. The EU Deforestation Regulation, which encompasses commodities ranging from palm oil to cocoa and coffee, requires most companies to comply by the end of the year. Critics argue that the regulations disproportionately affect smaller farmers. Importantly, EU palm imports, utilized in various products from ice cream to shampoo and fuel, declined by approximately 5% last year. Notably, shipments from Indonesia, Malaysia, and Thailand, the largest palm growers, were particularly impacted.

However, Carl Bek-Nielsen, chairman of the Malaysian Palm Oil Council, noted that this decline would be counterbalanced by increasing demand in Asia and Africa due to population growth. He stated in an interview on Monday that palm oil prices are expected to remain within the range of RM3,800 to RM4,250 per tonne this year. This forecast is supported by supply shortages and robust demand for the tropical oil. Bek-Nielsen, who is also the chief executive director of United Plantations Bhd, highlighted that benchmark futures closed at RM3,938.

According to Bek-Nielsen, the EU regulations could potentially sever millions of smallholders from the supply chain. He explained that these smallholders lack the requisite tracking systems and are grappling with various challenges, ranging from aging trees to diminishing yields. Bek-Nielsen emphasized that the regulations ought to be postponed until they are made more accommodating for smallholders. In Indonesia and Malaysia, smallholders contribute approximately 35% to 45% of production, while in Thailand, their contribution can be as high as 90%.