Palm oil incident adds uncertainty over Korea’s GDP

SEJONG -- A possible glitch in imports of palm oil is expected to further fan inflationary pressure in South Korea and constrain household consumption, which could hamper the growth of the gross domestic product.

Palm oil is used for producing Korean instant noodles and snacks.

Its largest producer Indonesia said it would issue a ban on exports of palm oil later this week. The Indonesian government made it clear that the decision was aimed at maintaining a stable domestic supply.

As products from Indonesia have accounted for more than half of Korea’s collective palm oil imports, there is a possibility that local prices of ramen, snacks, cosmetics and some others will eventually spiral despite the reserves held by industries, according to market insiders and the Korea Customs Service.

The situation could be another negative factor for the nation’s macroeconomy. More and more international organizations and research institutes have recently predicted that Korea’s GDP growth would stay in a 2 percent range this year in the wake of a spike in global raw materials prices from Russia’s invasion of Ukraine.

Statistics Korea data showed that the nation’s consumer prices climbed 3.6 percent in January on-year, 3.7 percent in February and 4.1 percent in March.

Given that consumer prices growth, on a yearly basis, stayed at 0.4 percent in 2019, 0.5 percent in 2020 and 2.5 percent in 2021, monthly figures for 2022 have become a downside risk for the economy.

Alongside high consumer prices, the spike in raw materials prices is posing a heavy cost burden for local exporters of processed products, which is another negative factor for GDP.

According to the Korea Customs Service, import prices of palm oil had already rapidly increased due to a surge in global demand amid normalization of the COVID-19 pandemic.

In March, the nation imported palm oil worth $90.38 million, under which the unit price per ton reached an all-time high of $1,453. This marked a 40.6 percent increase from March 2021, and a 95.1 percent increase compared to March 2020.

The sharp growth in palm oil prices was in line with steady growth in the prices of grain products such as wheat, corn and soybean oil, market insiders said.

By the news of Indonesia’s scheduled export ban, trading prices of palm oil at the Kuala Lumpur Exchange shot up to 6,799 ringgits ($1,560) per ton on Monday, up 7 percent from a session earlier. Malaysia is another large exporter of palm oil.

As of March, Indonesia accounted for 56.7 percent of Korea‘s palm oil imports, with Malaysia at 43.2 percent.

A food industry insider said: “As alternatives, prices of soybean oil, canola oil and sunflower oil could feasibly climb. The situation could deal a severe blow to producers of ramen and snacks.”

He said the issue is how long Indonesia’s export ban will continue, noting that local food companies are holding palm oil reserves sufficient for three or four months.

By Kim Yon-se (kys@heraldcorp.com)