KUALA LUMPUR/SINGAPORE Malaysia's palm oil exports to predominately Muslim countries have been falling as rising prices for the tropical oil and weak domestic currencies are limiting imports, and the high-consumption period of Ramadan is unlikely to turn the trend.
This could limit gains for benchmark palm oil prices 1FCPOc3 that have rallied to a two-year high on concerns that output from the main Southeast Asian growers will fall this year because of drought caused by the El Nino weather pattern. Prices have gained 8 percent this month, rising for a second month in a row.
The holy month of Ramadan starts in June this year and is known for its communal fasting. But palm oil consumption typically surges leading up to and during this time as Muslims use the oil to prepare meals to break the fast and during large banquets to celebrate the Eid al-Fitr holiday that marks the end of the fasting period.
"The Middle East and Northern African countries are currently seeing a challenging macroeconomic environment amidst low oil prices," said Aurelia Britsch, head of commodities research at BMI Research in Singapore.
"Economic growth is slowing down and governments are cutting public spending due to the deterioration in their fiscal position. These two factors are weakening consumer's spending power and demand for palm oil."
Predominantly Muslim countries in the Middle East and South Asia are exerting more influence on palm oil markets. The combined 2015 imports from Bangladesh, Pakistan and Egypt, the Muslim countries among the top 10 global importers, rose to 6.1 million tonnes, surpassing China for the first time, U.S. Department of Agriculture data showed.
While Malaysia's palm oil exports to those countries have declined during the past several years, in 2015 they represented, along with Shi'ite Iran, 8.7 percent of exports, according to data from the Malaysian Palm Oil Board. Malaysia is the world's second-largest producer after Indonesia.
Pakistan, the largest Muslim buyer of Malaysian palm oil, reduced its imports to about 728,000 tonnes last year, from nearly 1.8 million in 2011, the MPOB data showed.
Egypt was the third-largest Middle Eastern importer of palm oil in 2015 from Malaysia, taking nearly 210,000 tonnes, the MPOB data showed. However, that was down from over 700,000 tonnes in 2011.
Egypt, which relies heavily on imports to meet its food needs, has been facing a dollar shortage since a popular uprising in 2011 has driven away tourists and foreign investors, both major sources of hard currency.
"(Middle Eastern buyers) have seen steep declines in their currencies and this has taken a toll on buying power," said a trading manager at a Kuala Lumpur-based company that is a key supplier to the Middle Eastern market.
Iranian imports totalled 635,000 tonnes in 2013 and then slid to 331,000 tonnes by 2015, according to the MPOB. Bangladeshi imports dropped to about 263,000 tonnes from 442,000 tonnes over same period.
Egypt typically needs to buy a total of about 80,000 tonnes of palm oil a month from Indonesia and Malaysia to boost supplies for Ramadan but the country has been taking only about 60,000 tonnes since the start of 2016, said the trading manager in Kuala Lumpur and a second trader also based in the city.
Palm oil prices have climbed about 24 percent since June 18, 2015, when Ramadan began last year, to Monday's close of 2,758 ringgit ($688) a tonne.
"Buyers have been unable to digest the increase (in prices)," said another trader based in Kuala Lumpur. "The market needs to stabilise for buyers to start coming in."
Palm prices have gained about 10 percent since the start of the year, bucked by tighter global supplies due to the El Nino - the worst on record since 1997.
Industry experts have forecast global production to fall by 2 million to 3 million tonnes this year, which may lift prices up to 3,000 ringgit by June.
"Like everybody else I'm hoping demand for Ramadan will pick up, but it's a function of currency. Even if demand goes up, there's no way trade can happen if currency is not available," said a palm oil trader based in the Middle East.
(Editing by Christian Schmollinger)
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