Malaysia’s palm oil resilient amid global uncertainty

Malaysia’s palm oil sector has shown resilience amid external uncertainties, supported by sustained global demand with key markets such as China and India playing a crucial role.

But industry observers noted that several factors such as market fluctuations and policy changes could still threaten its stability.

Economic analyst Dr Zulkufli Zakaria said one major concern is climate change, which continues to affect production through unpredictable weather that leads to floods and droughts, among others.

While efforts are being made to address this issue, the effects are yet to be fully mitigated. He, however, said the industry is gradually adopting climate-resilient practices to reduce these risks.

“Another significant challenge is the European Union’s Deforestation Regulation, which requires importers to ensure that palm oil products are not linked to deforestation.

“Compliance with this regulation poses difficulties, particularly for smallholder farmers, and could disrupt exports to key markets. Malaysia must address this issue to safeguard its position in global trade,” he told Business Times.

Zulkufli highlighted that competition from soybean oil and shifting consumer preferences present a growing risk.

He said as health-conscious consumers become more selective about the oils they use, demand for palm oil could decline.

“Therefore, to remain competitive, Malaysia must not only recognise these risks but also adapt to evolving consumer behaviour and explore solutions to maintain demand,” he said.

Zulkufli noted that while the overall import volume of palm oil had declined, China continues to rely on the commodity for key industries, particularly the food sector.

“Edible oil demand remains steady, especially in the noodle industry, where palm oil is a key ingredient. Instant noodles manufacturers, for example, use palm oil in about 75 per cent of their production. China consumes an average of 40 billion packs of instant noodles annually, which translates to a significant share of its total palm oil consumption,” he added.

However, Zulkufli cautioned that price fluctuations in the palm oil market could influence China’s import decisions, as rising prices may prompt buyers to shift to alternatives like soybean oil.

Additionally, he noted that geopolitical trade factors also play a role, with recent shifts in China’s trade policies, such as reduced imports from Canada, contributing to a higher intake of Malaysian palm oil.

A plantation analyst pointed out that there are several factors driving China’s growing demand for palm oil.

He explained that the country’s economic recovery after the pandemic has driven higher consumption of processed foods, which depend heavily on palm oil, as changing lifestyles, affordability, and convenience continue to shape consumer habits.

He also noted that economic recovery has boosted demand for cosmetics, driven by rising incomes, a return to social activities, and the widespread use of palm oil in beauty and personal care products.”

“Fluctuations in soybean oil production, whether due to trade tensions or weather conditions, have pushed Chinese buyers to look for alternative vegetable oils.

“Furthermore, China’s expanding biodiesel industry, backed by government policies on renewable energy, has further increased the industrial use of palm oil. On top of that, global palm oil prices and exchange rates play a crucial role. If palm oil is cheaper than alternatives, China will buy more of it,” he said.

Overall, the palm oil sector was resilient in 2024, with China playing a key role in shaping market dynamics and reinforcing long-term stability, the industry observers said.

While India remains the largest importer of Malaysian palm oil, China’s evolving consumption patterns continues to shape market dynamics.

As the world’s second-largest economy rebounded, China’s appetite for palm oil remained strong, driven by its food industry, biofuel needs, and efforts to diversify vegetable oil imports, they added.

According to the Malaysian Palm Oil Council (MPOC), Malaysia exported 1.39 million tonnes of palm oil to China in 2024, a 5.3 per cent ddrop from the previous year.

The total export value of palm oil and palm-based products reached RM10.57 billion (about US$2.39 billion).

The decline in volume was attributed to the premium pricing of palm oil compared to alternatives like soybean oil, as well as reduced cooking oil consumption among China’s aging and increasingly health-conscious population.

However, Malaysia saw a significant surge in palm kernel oil exports to China, which rose 40 per cent. This was driven by higher demand from China’s oleochemical industry, particularly for surfactants used in household and industrial products.

Zulkufli said one major factor leading to the domestic sector’s resiliency was a 4.2 per cent increase in production to 19.34 million tonnes last year. This helped offset the decline in Indonesia’s palm oil output, which had led to a global supply shortage.

“At the same time, Malaysia expanded its exports to key markets, particularly Africa, where shipments surged by 23.66 per cent, and Europe where exports doubled in the first half of the year compared to 2023.

“South Asia, including India, saw a 13 per cent increase, while exports to the United States and China rose as well, further strengthening Malaysia’s position in the global market.

“Additionally, government-led sustainable initiatives played a crucial role in ensuring stability, with efforts focused on improving smallholders’ livelihoods and expanding access to profitable markets.

“These combined factors reinforced Malaysia’s ability to navigate uncertainties while maintaining steady growth,” he noted.

Tags: China, Production, India, Malaysia, palm oil, demand, markets