Global financial markets have taken the recent rush of Chinese policy responses to its stockmarket selloff as confirmation of the seriousness of the Chinese economic situation. With their domestic palm production industries facing a similar predicament given the nearly 25% price drop seen since the start of June, the governments of Indonesia and Malaysia have felt compelled to join the policy response fray. The two governments issued a statement on Thursday outlining their plans to partner on efforts to “explore new measures to further improve co-operation in the oil palm industry in light of the current global economic environment”. Collaboration towards “assisting smallholders” in the face of “global challenges” topped the governments’ agenda when they met in Java this week.
Since the meeting palm oil prices have enjoyed a more than 3% bounce, mirroring an upswing in Chinese stockmarket indices after their mid-August plunge. But China’s longer term outlook remains far from certain, with some economists outlining the need for further expansionary monetary policy and currency depreciation to offset a rising cost base amid widespread distrust of official growth figures. A weaker Renminbi would likely exacerbate the recent slowdown in Chinese palm oil offtake, leaving importers supplying vegetable oil demand into the faster growing Indian economy free to make first refusal on any surplus.
Indian growth in the last financial year picked up pace to hit 7.3% compared to 6.9% growth in the 2013/2014 financial year, with private consumption the main driver behind the economic expansion, according to India’s central bank. In the year to the end of July Indian imports of palm oil from Malaysia hit nearly 1.9mn t, outstripping Chinese demand by 22%. This indicates a significant acceleration in the 14% outperformance in demand for Malaysian palm oil which India posted relative to China last year. Combined Chinese and Indian imports from Malaysia in the first seven months of this year were on track to undershoot 2014 levels by around 2%, compared to a near 3% projected rise in Malaysian output in 2015/2016.