Indonesian palm oil producers look overseas

Indonesian palm oil producers look overseas

JAKARTA (Reuters): Indonesia's palm oil exporters have no choice but to sell their products overseas and at prices below Malaysia's because of poor domestic demand, industry sources said on Thursday.

Rising prices of refined, bleached and deodorized (RBD) palm olein, which is used as cooking oil, compared with crude degummed soyoil are reducing Malaysia's chance to attract more buyers from its main markets, such as India, Pakistan and China.

"It's true the rupiah's falls have encouraged Indonesian traders to sell oils at a discount," Derom Bangun, chairman of the Indonesian Palm Oil Producers' Association (Gapki), told Reuters.

"They are not dumping (oil). They have to offer more attractive prices in the overseas markets because competition is very tight," he added.

Traders said crude palm oil is being offered in Jakarta at up to Rp 2,500 a kg and demand was flat because many buyers had overbought ahead of religious festivities at the end of last year.

The export prices were slightly higher at Rp 2,593 a kg, including export tax of one percent.

Some Indonesian traders said they could offer a discount of up to $10 a ton compared with Malaysia's palm oil. Constant congestion in Indonesia's palm oil export ports of Belawan and Dumai in Sumatra have also forced exporters to cut prices.

Officials at Belawan port said Indonesian exports could reach up to 700,000 tons in March from the normal 500,000 tons because a weakening rupiah, quoted at Rp 10,290/10,340 against the dollar at 0703 GMT, had boosted exports.

Traders in Malaysia said April South American crude degummed soyoil was quoted at $490-$493 a ton C&F West India. May hovered at $489-$490 a ton.

April RBD olein was quoted at $535-540 a ton. Even after including refining costs of $20 a ton, soyoil is still cheaper for the Indian buyers, said traders.

India's towering duty on refined edible oil, which reaches 85 percent compared with soyoil at only 45 percent, is another major barrier. India is Malaysia's main palm oil buyer in 2000, taking 2.03 million tons.

Some traders said it remained uncertain whether Indian buyers would completely shift to soybean oil.

"I think individual taste still matters here. I mean, you may see such a discount of up to $50 for soybean, but if you prefer palm oil, you will always buy palm products," said one trader in Kuala Lumpur.

But rising prices of RBD olein in India because of the tax and talk the government's plan to burn crude palm oil (CPO) as fuel to ease domestic stocks and improve prices would never materialize dragged down Malaysia's palm oil futures.

"People have realized that we are outpricing soyabean oil for the Indian, Pakistani and Chinese markets. People also realize the plan to burn CPO will never happen," said another Kuala Lumpur-based trader.

Traders said there was talk Tenaga Nasional chairman Jamaluddin Jarjis had said it is difficult to burn CPO as fuel. Sate-owned Tenaga is Malaysia's largest power firm.

Sources at Tenaga said they were not aware of any such statement made by Jamaluddin. "What we know is that Tenaga is still conducting a study," said one source.

Primary Industries Minister Lim Keng Yaik said last week Tenaga would start burning 50,000 tons of CPO in April. The government plans to burn 400,000 tons of oil this year.

Malaysia's benchmark third-month June futures was 18 ringgit lower at 827 ringgit ($217.63) a ton at 0720 GMT.