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.