Singapore — The Malaysian government, which met the Malaysian Palm Oil Association Wednesday, said the industry can continue operations, sources said, clearing up confusion surrounding a partial lockdown of the country.
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Market participants had resigned themselves to complying with the government's Movement Control Order, aimed at slowing the spread of COVID-19. The confusion arose because it was not clear whether palm oil and its derivatives were included in the 'essentials' list of activities that could continue.
A Singapore-based broker said the MPOA had said Tuesday that "we have to adhere to the Government directive to cease operations from tomorrow onwards".
"We were told by the MPOA that we should comply with the order as the appeal to operate had not been accepted, and that only the refineries and biodiesel producers were allowed to continue operations. Cooking oil and energy are considered essential," a Malaysia-based producer
"However, in our meetings with the government officials, we had reflected the concern that the fresh fruit bunches would over ripen if left on the trees without harvesting. Also, we need to consider the free fatty acid content, which rises when the fruit over ripens," the producer said.
Another producer said: "For plantations, fruits is cash. The value depreciates if it is left too long on the tree when it has ripened and not harvested."
A Malaysia-based producer estimated a dip in production of up to 700,000 mt if plantations and mills were not allowed to resume operations.
With nearby supply tightness as a concern, the April contract on the Bursa Malaysa Derivatives exchange at midday extended gains made Tuesday, closing up MR 98 at MR 2,423/mt, with the benchmark June contract up MR 40 at MR 2,290/mt.
However, following news that operations were to resume, the April contract fell MR 16 to MR 2,309/mt, with June down MR 9 at MR 2,241/mt.
A Singapore-based trader said production in March was likely to remain similar to February as logistical challenges might prevent employees from getting to work.
"Productivity will definitely be affected negatively, and some destinations have not covered their Ramadan demand. Hence, I still expect some supply tightness in April," the trader said.