Very little can be discerned about the true state of a market from one month’s trade data.
Thus the news that the world’s biggest importer of oilseeds, India, imported 18% less refined palm oil (palmolein - a liquid form of palm oil used in cooking) in June (year-on-year) superficially sounds shocking, but in reality is yet another example of the time-lag effect.
The underlying reasons for the import drop are two-fold and likely to be temporary, although perhaps protracted.
The first is that in January this year India’s ministry of commerce pronounced that palmolein was no longer a "free" import but was now classified as "restricted", joining a list of more than 400 other items which includes unused postage stamps and depleted uranium.
The second is of course Covid-19 and India’s lockdown - which badly hit out-of-home dining, where palmolein is often used because buying it in bulk is generally a cheaper option for restaurants. About 9m tonnes a year of palm oil is consumed in India; household demand accounts for about 17% of that - remarkably close to the import drop in June. Palm oil accounts for more than 40% of India’s edible oil consumption.
The decision to make palmolein a "restricted" import in January by imposing a 5% import duty was an outright political act - it had nothing to do with palm oil.
Malaysia has been the biggest exporter of palmolein to India. In October last year the then Malaysian prime minister offended India’s Hindu nationalist government by criticising India’s new citizenship law. It took a few months but retaliation came in the form of the restrictions placed on Malaysia’s palmolein.
In March a new Malaysian government improved relations with India. The chill between the two countries is still thawing. The thaw, and India’s struggle to emerge from Covid-19 lockdown, are much bigger indicators of what’s going on than one month’s import data.
January crude palm oil prices traded above 3,000 Ringgits (more than $703) per contract on the Bursa Malaysia, before collapsing by a third in May They have since recovered to around 2,500 Ringgits, about $586 a tonne.
India’s Covid-19 lockdown has taken a savage toll. More than 100m of the country’s 1.4bn people could fall below the World Bank’s poverty line (for lower-middle-income countries) of just over $3 a day. Around 100m people have lost their jobs.
It’s not that India has lost its palmolein appetite, rather its ability to dine outside the home that has been knocked.
Malaysia has its own palm oil production problems. Its plantations’ sector - which include cocoa and rubber as well as palm oil, which accounts for about 20% of the country’s total agricultural area - is desperately short of the migrant workers it annually requires. Malaysia already loses each year as much as 20% of its potential palm oil production due to worker shortages.
Palm oil can be harvested all year round. If Malaysia struggles to gather in its crop, India’s reduced palmolein demand (which will recover in the coming months) could well run headlong into a reduced supply from its main source - which will be to the benefit of the world’s biggest palm oil producer, Indonesia.