Low demand may hurt KL, RI palm oil

Low demand may hurt KL, RI palm oil

KUALA LUMPUR (Reuters): Palm oil freight rates from Malaysia and Indonesia, the world's top producers, are likely to slide further over the coming months in the absence of fresh demand from major buyers, brokers said on Wednesday.

In the past few weeks, freight rates from Peninsular Malaysia and Sumatra in Indonesia were flat at US$24-$25 a ton for the west coast of India and at $19-$20 for the east coast, suggesting the world's largest edible oil importer was turning its back on palm oil.

Rates to India were hovering at $26-$27 a ton for the west coast and at $21-$22 for the east coast in June/July.

"Dozens of vessels are still looking for palm oil cargo in Pasir Gudang and other ports. It's been going on for a month," said one broker in Kuala Lumpur.

"Normally, we could see more than 10 ships leaving one particular port in a week. It doesn't happen anymore," he added.

Peninsular Malaysia/Sumatra share similar freight rates.

Brokers said freight rates to various destinations such as India, Pakistan, China and Europe were likely to fall by $1 a ton in September and the following months because there were almost no new contracts signed in August.

Traders and brokers said at least 600,000 tons of edible oil, including 300,000 tons of palm oil from Malaysia and Indonesia, arrived in India last month. But the palm oil cargo comes from old contracts.

In Indonesia, the normally congested palm oil exports ports in Sumatra were surprisingly quiet.

"I just got a call from someone who offered me some space. I was so surprised because people always have to struggle to find vessels to ship palm oil from Indonesia," said a trader in Jakarta.

Traders said India had turned to other edible oil, such as soyoil, since the government fixed base import prices of palm oil in August to prevent underinvoicing.

India was Malaysia's main palm oil buyer in 2000, taking 2.03 million tons and also a major buyer of Indonesian palm oil. India was seen buying 400,000 tons of palm oil in April, May and June each, but the amount could fall to 200,000 tons in September or even lower, they said.

In August, India fixed the base import price of crude palm olein at $357 a ton. It means any importer will have to pay duty assessed on an import price of $357 a ton for the oil no matter what its purchase price.

India had earlier fixed the base import price of crude palm oil at $337/ton and RBD palm olein at $372 a ton.

Some traders speculated buyers in India shunned palm oil because of the recent rise in Malaysia's crude palm oil futures, which hit a 22-month high at 1,315 ringgit ($346.05) (third-month basis) in August.

Brokers said another big buyer, Pakistan, had bought plenty of palm oil in July/August and is unlikely to return to the market in September.

They said freight rates from Peninsular Malaysia/Sumatra were flat at $23-$24 to Pakistan and at $46-$47 to Rotterdam. Freight rates stood at $25 for north China, $24 for central and at $20 for the southern part of the country.