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.