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ANALYSIS: Malaysia gobbles up Indian sugar

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Parallel to the Russia versus Saudi Arabia crude oil wrestling match is the less well-known spat between India and Malaysia over palm oil.

 

This latter tussle now looks like easing.

 

Malaysia’s purchases of Indian sugar so far this year, 324,405 tonnes, are almost triple the figure for the whole of 2019, which the president of the All India Sugar Trade Association (AISTA) says is a "pleasant surprise".

 

Which is an under-statement, given the recent stand-off between the two countries.

 

Politics interlocks with trade

 

The background to this is that former Malaysian prime minister Mahathir Mohamad last October accused the Indian government of having "invaded and occupied" the disputed territory of Kashmir, a Muslim-majority region which is also claimed by Pakistan.

 

This displeased the Indian government, which in January retaliated by placing restrictions on Indian imports of refined palm oil, one of Malaysia’s biggest exports.

 

A new prime minister, Muhyiddin Yassin, took office in Malaysia in February and it seems he is intent on re-building the broken fences with India.

 

Trying to sweeten the relationship

 

India has been the biggest buyer of Malaysian palm oil for the past five years. Last year it imported 4.4m tonnes of Malaysian palm oil. Malaysia, the world’s second-biggest palm oil producer, is India’s 17th biggest export market, yet is the 7th biggest export market for Malaysia.

 

Buying more of India’s sugar may help to sweeten the relationship, hopes Malaysia’s new commodities minister, Mohd Khairuddin Aman Razali, who has said rebuilding the Indian relationship is "one of the first moves" for the new government.

 

But it could be a one-sided love affair

 

India may be falling out of love not just with Malaysia but with palm oil.

 

The Solvent Extractors’ Association of India (SEA) said in mid-February that, partly as a consequence of benchmark palm oil price rising by 60% between July and December last year, substitution is taking hold. The share of palm oil in India’s edible oil import basket fell to 51% in January, its lowest since June 2018.

 

This interaction between politics and commodity imports - and prices - will no doubt re-balance much faster, and with less collateral damage than the crude oil Russia-Saudi tussle.

 

Staking more on palm oil looks risky at this stage, however. But with a tight sugar balance looming, higher Malay imports sends a clear signal.

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