Cutback on palm oil exports to India likely

By HANIM ADNAN

India may reimpose import duties on vegetable oils, analysts said

PETALING JAYA: Malaysia’s palm oil exports to India will likely register a cutback in the second half of this year due to India’s huge edible oils reserves and a possible re-imposition of import duties on vegetable oils, analysts said.

India had scrapped import duties on vegetable oils in April last year to keep prices at bay after inflation soared and oilseeds production declined.

Analysts said the latest development in the world’s second-largest edible oil consumer after China could disrupt the current healthy flow of local palm oil exports to India, especially during January to April.

“All will depend on the degree of the import tax re-imposition on palm oil. I believe if it is just 5% or 10% (import duty), it will still be manageable.

“However, if it goes beyond 20% on top of the current crude palm oil (CPO) price of RM2,600 per tonne, then exports in the coming months will definitely come down,” said CIMB Investment Bank Bhd analyst Ivy Ng.

Prior to India’s zero import duties regime, palm oil had been slapped with a 20% import duty.

According to the Malaysian Palm Oil Board (MPOB), local palm oil exports to India surged to 970,000 tonnes in 2008 compared with 511,167 tonnes in 2007.

Indian vegetable oil importers were seen increasing their uptakes over the past seven months, far beyond their normal requirement.

“This has resulted in huge edible oils reserves for end-May estimated at 1.7 million tonnes, exceeding the normal level of 1.1 million tonnes,” said an analyst with a foreign-based research house.

Last month, India was believed to have purchased over 800,000 tonnes of cooking oil, of which the bulk of about 700,000 tonnes were refined palm oil and CPO.

The analyst said: “This confirms our view that India’s astounding 76% edible oil import surge in the first four months this year has been for stockpiling rather than for consumption.”

He said Indian importers were busy stocking up on both crude and refined edible oils on fears that the recently-elected government in New Delhi would levy export and import taxes in the upcoming budget to be presented in parliament next month.

“If these taxes are imposed, the price of the commodity will increase more than the levy,” he added.

Meanwhile, a market observer said the export slowdown had started with the local palm oil shipment to India down to 121,000 tonnes in May from 163,000 tonnes in April.

MPOB is expected to release the latest May figures on palm oil export, production and inventory early next week.

IOI chairman sees palm oil averaging RM2,000

21/03/2009 (Business Times) - IOI Corp Bhd (1961), the world's third largest listed palm oil producer, said the price of crude palm oil (CPO) could rise 20 per cent due to falling domestic stockpiles.

"We see prices trading within a range of RM2,000 to RM2,300, averaging about RM2,000 a tonne. This should be the fair value of palm oil for the time being," said IOI group executive chairman Tan Sri Lee Shin Cheng, without providing a time frame for the forecast.

"Demand for palm oil is sustaining, as can be seen from the drawdown of stocks in Malaysia. Palm oil stock in Malaysia is now at a 16-month low," Lee said in an e-mail when asked to comment on the price outlook for the tropical oil.

Lee's view on palm oil is closely followed by traders and industry analysts.

Malaysia's CPO inventories fell 15 per cent to a 16-month low last month, a bigger-than-expected drop, as production of the vegetable oil declined faster than the drop in exports, industry data showed last week.

Malaysia is the world's second largest palm oil producer, after Indonesia.

The benchmark palm oil futures contract on the Bursa Malaysia derivatives market is currently hovering slightly above RM1,900 a tonne.

CPO prices have gained nearly 13 per cent this year as stocks in Indonesia and Malaysia dropped to an average of four million tonnes from a record five million in December on good Asian demand.

But industry analysts last week predicted that palm oil prices would suffer from selling pressure in the second half of 2009 due to weaker commodity markets, slowing demand and an uptick in output.

Lee is maintaining his relatively bullish view, which he has held since the fourth quarter of last year, even as the global economic outlook has significantly worsened over the past few months.

"The severity of the current global economic crisis has surprised everyone, including the experts," said Lee.

"This crisis has affected almost all commodities adversely as economic activities slumped. However, vegetable oils, being a staple food item, is more resilient," he said. - Reuters