Indian refiners have resumed buying Malaysian palm oil after a near one-month suspension linked to a political row as Kuala Lumpur began offering a $5 a ton discount over supplies from rival Indonesia, five traders told Reuters on Thursday.

The resumption in purchases by India, the biggest buyer of Malaysian palm oil this year and which has contracted some 70,000 tonnes for December, could support Malaysian palm oil prices which are near their highest in two years.

Palm oil is crucial for the Malaysian economy as it accounted for 2.8 percent of Malaysia's gross domestic product last year and 4.5 percent of total exports.

Indian refiners stopped purchases from Malaysia last month, fearing New Delhi could raise import taxes or enforce other measures to curb imports after Kuala Lumpur criticized New Delhi for its actions in Kashmir.

Malaysian palm oil is available at a $5 discount amid congestion at Indonesian ports, said a Mumbai-based dealer with a global trading firm.

Palm oil
A worker collects palm oil fruits at a plantation in Bahau, Negeri Sembilan, Malaysia January 30, 2019.Reuters

"This is giving a few buyers a reason to start buying Malaysian oil in small quantities to run their refineries."

Malaysian crude palm oil (CPO) for December shipments was available at $603 on Thursday, while Indonesian CPO was quoted at $608, dealers said.

Indonesia is the world's biggest producer of palm oil, followed by Malaysia.

When did India stop buying Malaysian palm oil?

In October, India's top vegetable oil trade body told members to stop buying palm oil from Malaysia in a call aimed at helping New Delhi punish the country for criticizing India over its policy toward Kashmir.

India's government was angered after Malaysian Prime Minister Mahathir Mohamad said at the United Nations that India had "invaded and occupied" Jammu and Kashmir and asked New Delhi to work with Pakistan to resolve the issue.

India's government has not made any public remarks about imports of palm oil from Malaysia.

"The dispute has been going on for a month but still India hasn't come out with concrete measures. Some traders have started taking risks, assuming it may not impose a duty on Malaysian palm oil," said a Mumbai-based importer.

Palm oil accounts for nearly two-thirds of India's total edible oil imports. India buys more than 9 million tonnes of palm oil annually, mainly from Indonesia and Malaysia.

palm oil Malaysia
Workers stand near palm oil fruits inside a palm oil factory in Sepang, outside Kuala Lumpur, February 18, 2014.Reuters

Edible oil imports

In the first 10 months of 2019, India bought 4.1 million tonnes of Malaysian palm oil, Malaysian Palm Oil Board (MPOB) data showed.

India's palm oil imports from Malaysia fell to 219,956 tonnes in October from 310,648 tonnes in September and 550,452 tonnes in August, MPOB data showed, as Indian traders stopped signing new contracts.

Indian refiners have contracted around 70,000 tonnes of CPO for December shipments and a small quantity was also bought for January shipment, said a Kuala Lumpur-based palm oil dealer.

India, the world's biggest importer of edible oils, also buys soy oil from Argentina and Brazil, and sunflower oil from Ukraine.

"As palm oil futures have jumped in the last few weeks, Malaysian traders are eager to sell at higher levels before India imposes any restriction," said a New Delhi-based trader.

Malaysian palm oil futures reversed earlier losses and closed higher on Thursday after Reuters reported that India had resumed purchases of the vegetable oil.