Gloves on in CPO battle between Malaysia and RI

Gloves on in CPO battle between Malaysia and RI

KUALA LUMPUR (Reuters): Malaysia's rejection of Indonesia's
suggestion that the two countries should withhold palm oil
exports to revive prices shows they are headed for a major price
war, traders said on Friday.

After months of tit-for-tat where both countries either cut or
completely waived export taxes for crude palm oil (CPO) in a
desperate bid for market share, Indonesia signaled a truce on
Thursday.

An Indonesian trade and industry ministry official told
Reuters in Jakarta that Minister Luhut Pandjaitan had initiated
talks with Malaysian Primary Industries Minister Lim Keng Yaik
over possible cooperation to boost prices.

The official said an export retention plan, similar to the
world coffee producers' retention scheme, was among the measures
discussed.

But a spokesman for the Malaysian ministry immediately denied
Minister Lim had discussed a price pact with Pandjaitan. The
spokesman said withholding exports was never an option for
Malaysia.

"In fact, we want to export more," he told Reuters in Kuala
Lumpur. "That's why we are talking to China and Russia for
counter-trade."

Traders said Malaysia's quick and vigorous denial of the
Indonesian statement meant a prolonged a battle was looming
between the commodity's biggest producers.

"The Malaysians have become very aggressive after losing much
market share to the Indonesians," one said. "They are determined
to export at much lower prices now than ever to outdo the
Indonesians."

Malaysia's problems began when India, now palm oil's biggest
consumer, raised taxes on imported refined oils twice this year
to protect its domestic oilseeds and refining industry.

Malaysia, which has ample refining capacity, has always taxed
CPO exports highly to ensure enough supply for downstream use.

But India's higher taxes on refined oil dealt a sudden blow to
Malaysian products such as RBD palm olein. Indonesia, which had
no agenda for its CPO, saw an opportunity in its rival's misery
and began boosting its raw material exports to India.

Malaysia tried to recoup market share by waiving export duty
on half a million tons of CPO last month -- a trick it had
resorted to in earlier years when raw material supply was heavy.

Indonesia countered by slashing taxes on CPO and refined oil.

Traders said Malaysia was slow in reacting as Indonesia had
already exported 500,000 tons of CPO to India by June.

To make matters worse, some Malaysian palm oil sold to India
was facing contract defaults now after the local market fell to
seven-year lows this week, said dealers in Singapore.

"Which Indian importer is going to take delivery when the
market has fallen to such an extent?" one dealer asked.

Malaysian RBD palm olein for October was quoted at $240 a
ton at midday on Friday.

But traders said the Indonesian equivalent could be obtained
at around $235 a ton, thanks to the battered rupiah as opposed to
the fixed value of the ringgit. The Malaysian currency is pegged
at 3.80 a unit to the dollar.

Traders said the current drop in palm oil prices may result in
fresh demand from India as its domestic oils supply was entering
seasonal lows. But they said New Delhi might also be considering
a new round of higher taxes to further insulate its suppliers.

Traders said demand has also dropped from Pakistan and China
-- two other big buyers now harvesting their own oilseeds.

"Malaysia and Indonesia have no choice but to slug it out if
they want to sell their palm oil to the world," said a dealer.