KUALA LUMPUR (Nov 4): Local independent palm oil millers could face a hard time selling their crude palm oil (CPO) over the next two months as refineries move to halt deliveries amid record-high inventories, according to industry sources.
With refineries taking in less CPO, some millers are already accumulating unsold stocks and running short of storage space, raising concerns that they may soon have to stop buying fresh fruit bunches (FFB) from smallholders.
Some of the unsold CPO has been stored for so long that its quality has deteriorated, rendering it “off-specification” and “unsuitable for export”, a source in the palm oil market told The Edge.
“Within weeks, many mills will have to stop buying FFB. Fresh fruit must be processed within a day or two of harvest, so smallholders risk losing their income altogether, rather than merely receiving lower prices,” the source said.
Malaysia has more than 440,000 independent and organised oil palm smallholders, defined as those cultivating less than 40.46 hectares of land.
Another industry source said refineries had begun cutting CPO purchases from third-party mills as early as September.
“And now, as we enter November, we are unable to secure contracts or make sales. It is no longer something that we can consider temporary. We anticipate the situation could drag on until February 2027 if the government does not intervene,” the second source said.
Sandeep Singh, founder and director of palm oil trading and consulting firm Global Farm Trade Sdn Bhd, meanwhile, warned that the mounting stockpile could have wider implications for the palm oil supply chain.
“Refineries are prioritising supplies from their own mills, leaving third-party mills waiting for allocations from the refineries. If the stocks are not moved quickly, the ripple effects will be felt more strongly by smallholders and in FFB sales.”
However, another source from the milling industry disputed claims of delivery disruptions, saying there had been no issues with CPO deliveries to refineries in Peninsular Malaysia.
Palm oil mills extract CPO from the fleshy part of oil palm fruit — known as the mesocarp — before selling it to refineries for processing into refined, bleached and deodorised (RBD) palm oil and other products.
The supply glut comes as Malaysia’s palm oil inventories surged 24.54% month-on-month to a record 3.51 million tonnes in September from 2.82 million tonnes in August, according to data from the Malaysian Palm Oil Board (MPOB).
The stockpile grew as CPO production rose 16.48% month-on-month to an all-time high of 2.12 million tonnes, while palm oil exports fell 12.13% to 1.12 million tonnes.
CPO stocks alone rose 31.88% to 2.16 million tonnes, while processed palm oil inventories increased 14.33% to 1.35 million tonnes.
Elevated CPO prices may also have prompted buyers, particularly in price-sensitive markets, to switch to cheaper edible oils. The MPOB spot CPO price has risen 11.65% year-to-date to RM4,391 per tonne.
MPOB is scheduled to release October’s palm oil supply and demand data on Nov 10.
Industry calls for temporary CPO export duty waiver
With independent millers struggling to clear their stocks, industry players are urging the government to temporarily suspend the 10% CPO export duty, arguing that the levy further undermines Malaysia’s competitiveness against cheaper Indonesian supplies.
Indonesian CPO is estimated to be RM700 to RM900 per tonne cheaper than Malaysian CPO, according to industry estimates.
Malaysia imposes a tiered export duty of between 3% and 10% on CPO when prices exceed RM2,250 per tonne. The maximum rate of 10% applies when prices surpass RM4,050 per tonne.
For November, the duty remains at 10%, based on a reference price of RM4,323.78 per tonne.
Industry players argue that a temporary waiver could narrow the price gap, make Malaysian CPO more attractive to overseas buyers and help reduce domestic inventories.
They have also questioned why Malaysia continues to import palm oil despite the record domestic stockpile. Data from the MPOB show that the country imported a combined 107,588 tonnes of palm oil in August and September.
The Palm Oil Refiners Association of Malaysia (Poram) is understood to have been lobbying the Ministry of Plantation and Commodities for a temporary suspension of the export duty.
When contacted, Poram chief executive officer A Fadzli Abdul Aziz declined to comment on the matter.
The Edge also sought comment from the Ministry of Plantation and Commodities, whose spokesperson said the proposal remained under consideration by the Ministry of Finance, with the final decision resting with the latter.
The proposed waiver is understood to be among the matters expected to be discussed at the Cabinet meeting on Wednesday (Nov 4).
Alleged ‘cocktail’ palm oil blending raises traceability concerns
Meanwhile, concerns have been raised over the alleged blending of imported palm oil with locally produced supplies for re-export, potentially allowing foreign-origin oil to be marketed as Malaysian palm oil.
Trade sources has dubbed the alleged practice as a “cocktail”, with blending ratios of 75:25 or 80:20 reportedly circulating in the market.
“In the trade, this ‘cocktail’ is clearly an adulteration of Malaysian oil. It cannot be confirmed by the market alone, which is why the authorities need to check. Trade talk is that much of this oil only passes through Malaysia. It arrives, mixed into a ‘cocktail’, and leaves again carrying a Malaysian label,” a source said.
The spokesperson for the Ministry of Plantation and Commodities declined to comment when asked about the allegations.
The industry source warned that the practice, if it is taking place, could displace locally produced palm oil in overseas markets and undermine confidence in Malaysia’s palm oil brand, including its Malaysian Sustainable Palm Oil (MSPO) certification and traceability framework.
“Customs, MPOB and Miti (Ministry of Investment, Trade and Industry) already hold the import and origin records, so this can be checked quickly,” the source added.
Source : TheEdgeMalaysia