The potential implication of a reduced workforce, coupled with news of sugar refineries facing hiccups, drew concerns over ongoing delays in Malaysia's sugar exports.
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In a bid to curb the surge in COVID-19 infections in Malaysia, the government announced a two-week nationwide lockdown starting June 1.
Under the government's new lockdown rules, only 17 essential economic sectors are permitted to continue operations, with capacity restrictions put in place. Malaysia has classified manufacturing activities as an essential economic sector and has allowed the sector to remain in operation with a 60% limit on its workforce.
Although essential activities remain in operation, albeit with a reduced workforce, concerns over potential production delays stemming from these labor restrictions are brewing.
Market participants noted, based on the developments surrounding the nationwide lockdown, there could be issues with receiving Malaysian sugar on time as delays are expected.
"With the lockdown restrictions in Malaysia, they have to reduce the workforce in the refineries, so that will definitely slow down the shipments and supply," a sugar trader based in Singapore said.
Potential production delays in refineries
In early April, privately-held sugar producer MSM Malaysia, which is listed on Bursa Malaysia,announced the temporary closure of its Johor refinery for two months to fix a boiler. Along with the announcement, MSM reiterated that the company has sufficient refined sugar stocks to fulfill existing contracts.
On June 1, the company said in a statement that the Johor refinery is expected to resume sugar production and packing on June 4 after completing the boiler rectification.
Despite the official announcements, there is still a degree of uncertainty among trade houses of MSM's operational capacityand the quality of sugar produced by the refinery.
According to market sources, production at MSM'sJohor refinery has restarted, but the quality of the sugar produced is still not up to standard and it might take some time before the quality of the sugar stabilizes.
"The Johor refinery plant restarted, but they are still trying to stabilize the production at the moment and assess if the sugar is of good quality. I don't think they are packing any sugar yet," a Singapore-based trader said.
In addition, some market participants said that MSM's other refinery in Prai, located in Malaysia's northern state of Penang, is currently facing production issues as impurities were found in the processed white sugar.
"Over the past few days, there has been foreign matter found in the white sugar production. Therefore, MSM has to stop production, and focus on flushing out the foreign material from the sugars," a Far East Asian buyer said.
The creeping concerns surrounding possible production challenges faced by Malaysian refineries and the potential delay in shipment of Malaysian sugar caused by the nationwide lockdown could push buyers to consider importing sugar of other regional origins.
"Those buyers who cannot wait for the [delayed shipment] have to replace and get it from somewhere else. If their replacement is Indonesian sugar, then it is much more expensive," a Hong Kong-based trader said.
According to S&P Global Platts Analytics' latest estimates, Malaysia's total raw sugar import demand will be lower in 2021 by 500,000 mt given the strong imports in 2020. The country's import shipments are likely to be slow in Q2 and could be deferred to Q3 owing to operational issues and pandemic-related shutdowns, while the risk on Q3-Q4 demand is limited.
A trader based in Singapore said that at present, Malaysia has too many export contracts and domestic demand to fulfill and this problem might persist even as refinery production stabilizes, hence delays are expected.
"More imports could be going into Malaysia if the problems with the refineries persist," the trader said.