KL hopes to clear 1m tons of palm oil for export

KL hopes to clear 1m tons of palm oil for export

KUALA LUMPUR (Reuters): Malaysia, the world's biggest palm oil
producer, announced two export plans on Tuesday which officials
hope will together cut its burgeoning stocks of crude palm oil
(CPO) by an estimated million tons over a year.

The news caused Malaysian palm oil futures to jump as dealers
finally got some key details on the duty-free export scheme weeks
after a preliminary announcement.

But some traders doubted the gains would last given
fundamentals of heavy global supply which could undercut the
scheme.

In an immediate reaction, second largest producer Indonesia
said it hoped to cut export tax on CPO to five percent from 10
percent within a week's time.

Malaysian Primary Industries Minister Lim Keng Yaik told a
news conference the government would hand out licenses by mid-
September to several companies to export 500,000 metric tons of
CPO without tax over the next six months, and detailed a credit
scheme that could help sell another 500,000.

The benchmark November palm oil contract was up 12 ringgit to
1,023 ringgit ($269) a ton at the midday break on Lim's
announcement, with the nearby October and December contracts
rising in equal strength. The market was holding most of the
gains in afternoon trade.

Lim did not say which or how many exporters would benefit from
the tax-free license plan, a variation on a similar program last
year, although the market thought eight to 10 might be included.

Four firms -- Felda, Kuala Lumpur Kepong Bhd, Golden Hope
Plantations Bhd and Kuok Oils and Grains -- had permission to
export a total one million tons of CPO last year. Despite this,
Malaysia only exported 256,518 tons in 1999.

Market sources said new firms given the concession this time
could include Sime Darby Bhd, United Plantations Bhd and PPB
Group Bhd.

Malaysia normally does not encourage CPO exports as it has a
large number of refiners. But a sharp increase this year in taxes
on refined palm oil by India, Malaysia's biggest buyer, forced
Kuala Lumpur's hand.

Malaysia's palm oil stocks at the end of July stood at 1.07
million tons.

The country's export tax on crude palm oil is based on a
graduated scale starting with 10 percent on prices above 600
ringgit per ton.

The duty now stands at 140 ringgit per ton.

The duty-waiver announced by Lim was part of a cat-and-mouse
game between Malaysia and Indonesia. Around the time Lim first
mooted his plan last month, without providing details, Indonesia
said it would cut taxes on both CPO and refined palm oil.

Both sides waited for the other to move. Indonesia said last
week it had to seek International Monetary Fund approval for its
plan as a cut in export taxes would affect important revenue. But
on Tuesday, after Lim's announcement, Finance Minister Prijadi
Praptosuhardjo said he hoped to halve Indonesia's CPO export tax
by next week.

Lim said India would be the target market for most of the CPO
it would export under its duty-free plan.

Lim also said the government has approved a $130 million
scheme for five countries -- Russia, Myanmar, Egypt, Bangladesh
and North Korea -- to buy Malaysian palm oil on credit over the
next year.

He did not quantify the palm oil expected to be sold under the
Palm Oil Credit and Purchase Agreement (POCPA).

But an official of his ministry said that $130 million was
equivalent to about 500,000 tons at current prices.

"So with the POCPA clearing half a million tons and the
export-duty waiver taking up another half million, we will
effectively get rid of about one million tons of stock in the
next one year," the official told Reuters.

Traders were skeptical of the palm oil market's rally on the
news. "This is initial euphoria," said a dealer. "The supply
fundamentals are still worrying."

Concerns Malaysia may produce up to 11 million tons of CPO
this year -- more than the 10.5 million in 1999 -- had kept the
local palm oil market in the doldrums for most of this year.

Lim said at the current rate of production, palm oil futures
were expected to hover at around 1,000 ringgit a ton over the
next few months.