Palm oil market still on edge

Palm oil market still on edge

Lewa Pardomuan, Reuters, Kuala Lumpur

China will eventually use its palm oil import quotas for this year, but the timing of its purchases and how much the country is going to buy remain a mystery, traders said on Wednesday.

"There are talks that two-third of the quota will go to private sector and the rest to state enterprises," said one trader in Malaysia.

"The state enterprises will be told not to import anything until later this year because China is harvesting repassed. The government doesn't want the local market to collapse," he added.

China issued palm oil import quotas for 2002 in February, totaling 2.4 million tons, up from last year's 1.4 million tons following its entry to the World Trade Organization (WTO).

China is expected to buy Refined, Bleached, Deodorized (RBD) palm olein, which is mostly used in the country's instant noodle industry, from Malaysia and Indonesia.

But the government said this week it has not delivered this year's import quotas for farm products, including wheat, corn and edible oils, to trading firms and there might be a delay in the March 5 deadline.

The possible delay added to anxiety in Malaysia and Indonesia, the world's largest producers, because Chinese buyers could not import edible oil without government licensees.

"Even prominent players in China are not sure as to when the import (licenses) will be on hand," said one trader.

China bought 1.02 million tons of palm oil from Malaysia in 2000, up from 800,135 tons in 1999.

Traders in Indonesia said China had shunned the local market for two months due to the absence of import licences. The world's second largest producer aims to supply 720,000 tons or around 30 percent of the quotas.

China is seen holding the trump card that will decide whether the Malaysian palm oil futures market could touch last year's high of 1,315 ringgit recorded on Aug.8.

The benchmark May contract was four ringgit lower at 1,165 ringgit (US$306.58) a ton at the close on Tuesday.

Some traders said if Beijing did order state enterprises to refrain from importing palm oil indefinitely, China is likely to absorb 1.6 million tons of oil in 2002, slightly higher than last year's 1.4 million tons.

China's repassed crop for this year was expected to rise five to seven percent to a new record from 11.7 million tons last year.

Traders said at least 100,000 tons of palm oil from Malaysia and Indonesia were already sitting in Hong Kong, waiting for Beijing to release the licences. Others said the amount reached as high as 400,000 tons.

Up to 80,000 tons of palm oil are now stored in bonded tanks on the mainland, said traders.

In Pasir Gudang, one of the main ports in the peninsula, stocks are also building up. Freight booking for shipment to China has reached at least 70,000 tons so far this month, said traders.

Some traders speculated China would enter the market when palm olein prices fell.

March RBD palm olein was last quoted at $332.50/ton FOB Malaysia. Chinese buyers, however, wanted to buy olein at $332.50 on an C&F basis, said traders.