However, there is no need to be alarmed, said Malaysian Palm Oil Council (MPOC) chief executive Tan Sri Yusof Basiron. "The slight 50,000 tonnes dip in palm oil purchase from Malaysia does not necessarily imply China is a saturated market," he told Business Times in an interview.
"There is still room for growth in China's demand for Malaysian palm oil. There are more than 1.3 billion people there and many have big appetite for tasty food," he said.
He explained that last year's dip was caused by extreme market volatility as prices fell for seven months from April. It hit a low of RM1,390 per tonne at the end of October and traded sideways for two months. Soon after Christmas, it began to climb to RM1,900 per tonne but of late, has settled to around RM1,800 per tonne.
The yoyo-like price movement had caused much uncertainty and disrupted vegetable traders' forward purchase decisions. Many orders to China were deferred, especially from August to October. "Also, Chinese vegetable oil trading houses, like other businesses there, were facing challenges in securing trade facilities from the banks," he said.
Yusof then stressed that the global palm oil market had recently taken a positive turn. Last month, there was a surge in palm oil shipments and stock levels reduced drastically. "In the past, the carry-on stock levels ranged between 500,000 and 600,000 tonnes. This year, the stock level reduced to between 200,000 and 300,000 tonnes," he said.
When asked to forecast palm oil exports to China, he replied, "we should be able to do four million tonnes this year. It is not a problem."
Yusof then explained the rise and fall of palm oil shipments to several other key markets.
Q: Palm oil exports to the Netherlands continued to shrink last year. Will the downtrend persist? Are there ways to halt the decline?
A: The declining palm oil imports into the Netherlands were mainly due to less palm oil usage in power generation.
The current palm oil purchase of around 1.3 million tonnes reflect the total consumption before the Dutch government's implementation of the renewable energy programme in 2005/06.
Then, the Dutch government encouraged production and use of renewable energy by giving tax credit to power producers. The decision boosted palm oil consumption since palm oil was cheaper then other oils.
But things took a turn lately, when environment activists mounted campaigns to stop the subsidy. The Dutch government, after consultations with the stakeholders, decided to revise the policy and restrict palm oil in green energy production. Rising palm oil prices in the first half of 2007 had also cut back palm oil use in power generation.
It is important to note that the Netherlands' declining palm oil orders in 2008 and 2007 do not reflect less demand for food.
Q: Did Malaysia file a complaint to the World Trade Organisation (WTO) on European Union's (EU) scaled down biofuel policy that seems to discriminate against palm oil?
A: We are studying this possibility and we consider the directive to be discriminatory and against the WTO rules. Several developing countries have joined hands to voice their concern on this matter. We will continue to actively engage EU legislators to address concerns on palm oil sustainability.
There is increasing awareness that this poorly thought-through legislation could turn out to be a trade barrier.
The European Commission (EC) is working to prepare guidelines to implement the biofuels sustainability scheme by July. It will include practical guidance on key issues like change in land use, food security of a nation, new default values for greenhouse gas emissions and tools to accredit certification schemes.
Besides sharing greenhouse gas savings data, Malaysia will submit other figures to support its views for a workable certification framework. By the end of this year, the EC is scheduled to report on the expansion of the sustainability criteria to all forms of biomass for energy uses.
It is crucial to provide relevant technical input to these initiatives to make sure palm oil is not discriminated.
Q: Malaysia's free trade agreement (FTA) with Pakistan expanded palm oil shipments. Will we see this positive trend continuing?
A: Malaysia's FTA with Pakistan, which was signed in November 2007, came into effect in January 2008. It took two months for the FTA modalities to finalise but after that there was a clear shift of imports from Malaysia.Pakistan is a stable market. We see 10 per cent more in exports to 1.3 million tonnes this year because the FTA with Pakistan facilitates a vegetable oils import tax structure that is favourable to Malaysia.
In 2008, Malaysia recaptured its lost market share by another 11 per cent and currently stands at a commanding 73 per cent share.
We have also managed to keep more than 50 per cent share in crude palm oil (CPO) exports to Pakistan, thanks to the joint venture between Felda, KLK and Westbury Group of Pakistan.
Q: Last year, Malaysia's palm oil exports to the US topped 1.05 million tonnes. What led to the 25 per cent export growth?
A: US increasing legislation against the deadly trans fatty acid has spurred more food giants to replace hydrogenated and partially hydrogenated oils with heart- healthy palm oil. More and more confectionery and snack food manufacturers are switching over to palm oil because in its natural form, it is trans fat free and remains stable in extreme deep-fry heat.
Q: Is the US buying more Malaysian palm oil for fuel? Will President Barack Obama's renewable fuel policy have an impact?
A: Last year, several biofuel producers in the US ordered about 10,000 tonnes of biodiesel from Malaysia to blend in with other variants of biodiesel.
Given Obama's commitment to reducing greenhouse gases and promoting renewable biofuels, Malaysian palm oil will be viewed favourably as we are committed to producing sustainable palm oil.
Obama had, in his campaigning days, stated that by 2022, six billion gallons of fuel produced in the US will be made up of sustainable and affordable biofuels.
Despite the current focus on improving the economy, his administration is likely to remain committed to developing alternative and sustainable sources of energy. We expect the new administration to invest federal resources, including tax incentives and government contracts, to develop second generation biofuels.
Q: India has started buying more from Malaysia after a 10-year decline. Will the strong purchase hold up this year?
A: Since April 2008, India abolished import duties on crude vegetable oils, including CPO. At the same time, duties on refined vegetable oils, including RBD olein, were brought down to 7.5 per cent. Following this, there was a surge of RBD olein imports from Malaysia. As to whether the strong purchase will hold up, it will depend on whether there is a change in the vegetable oil import duties.
Q: Despite Malaysia's promotional activities in South Africa, exports have fallen. Why?
A: Malaysian palm oil exports to South Africa fell last year because vegetable oil buyers bought more Indonesian palm oil at lower prices.
Q: Last year, palm oil exports to Ukraine almost tripled to 483,955 tonnes. Why the sudden surge?
A: The big orders going into Ukraine are largely due to the higher consumption by Delta-Wilmar CIS Ltd, a joint-venture between Wilmar International and a local Ukrainian company.
Delta-Wilmar operates a 300 tonne-a-day shortening plant there and is the largest importer of palm oil. With the completion of its 1,200 tonne-a-day palm oil refinery in the Black Sea Port of Yuzhniy, it is poised to import more palm oil from sister companies in Malaysia to make mayonnaise, margarine, confectionery and bakery products. Delta-Wilmar is also expanding its storage facility to 100,000 tonnes at Yuzhniy port.