Indonesia, the world’s biggest palm oil supplier, may increase sales to China and India after export taxes were cut for refined products, weighing on global prices, said a Malaysian industry association.
The country “will find a much bigger market share especially in price-sensitive” nations like China, India and Pakistan, said Mohammad Jaaffar Ahmad, chief executive officer of the Palm Oil Refiners Association of Malaysia. “There will be some buildup in CPO stocks, and once that happens, it will definitely depress prices.” CPO refers to crude palm oil.
Prices of the tropical oil, used in everything from cookies and potato chips to detergents and fuel, have dropped 26 per cent this year on higher harvests and concern that a global slowdown may curb demand.
Declining futures may ease near-record food costs that have jumped 26 per cent in the past year, according to the United Nations. Indonesia and Malaysia supply 80 per cent of the world’s palm oil.
“As Indonesian refined exports rise, they will squeeze Malaysian exporters out of some markets,” said James Fry, chairman of LMC International Ltd, an Oxford, England-based advisory company. That may increase stockpiles in Malaysia and tend to depress crude palm oil, he said in an e-mail October 1.
The most-active December-delivery contract fell 0.9 per cent to end at 2,785 ringgit ($874) a tonne on the Malaysia Derivatives Exchange pn Wednesday, the lowest close in a year. The 26 per cent drop this year was worse than the 15 per cent slide in soybean oil and the 17 per cent loss in the Standard & Poor’s GSCI Agriculture index of eight commodities.
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“Malaysia will have competition,” Derom Bangun, deputy chairman of the Indonesian Palm Oil Board, said by phone from Medan yesterday. “With more supply there will be a bit of correction in the price, but not much.”
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The maximum export tax for refined, bleached and deodorized palm oil was reduced to 10 per cent from 23 per cent and the rate for RBD palmolein was cut to 13 per cent from 25 per cent, while the highest tax for crude palm oil was 22.5 per cent, according to a finance ministry decree. The changes were effective October 1.
Crude oil from Malaysia is subject to a duty based on a published weekly price and averaging 25 per cent, while there is no export tax on refined products, Jaaffar said.
Refiners in Malaysia and other countries which import crude oil may face constraints as there could be less unprocessed oil from Indonesia, Jaaffar said. Malaysia imported about 1 million tonnes of crude oil and 445,066 tonnes of crude palm kernel oil, mainly from Indonesia last year, he said.
Refining companies in Indonesia will restart idle capacity and export to India and China, said Bangun. They may have used only 30 per cent to 50 per cent of capacity until now, he said.