Palm oil prices surge on Malaysian move
Palm oil prices surge on Malaysian move
KUALA LUMPUR (Reuters): Malaysia's pump-priming measures for
palm oil have caused prices of the commodity to jump at least $20
a ton in two weeks, making it pricier than soyoil in the world's
most important market -- India.
A 500 million ringgit (US$131.6 million) fund to replant oil
palm fields and a plan to burn 400,000 tons of crude palm oil to
cut back on production are among recent initiatives taken by
Malaysia to boost palm oil prices.
As a result, Malaysia's benchmark palm oil futures, the third-
month contract, was trading at 889 ringgit a ton at 0710 GMT on
Monday -- up 100 ringgit ($26.30) from the closing on March 6.
On the physical market, refined bleached deodorised (RBD) palm
olein for June was offered at $267.50 a ton -- up $20 from two
weeks ago.
While the higher prices have fulfilled the government's aim of
appeasing poor farmers and helped them earn short-term profits,
the moves seriously hurt palm oil's competitiveness against
soyoil in markets such as India, traders said.
India, palm oil's biggest consumer, recently raised import
taxes for RBD palm olein to 92.4 percent, meaning a typical
May/June shipment at an FOB price of $267.50 a ton would end up
costing $582 with taxes, freight and insurance.
South American soyoil, while costing around $300 a ton FOB,
still ends up cheaper than palm oil at $530 a ton after
refinement and freight costs, largely due to an import levy of
only 45 percent.
"At this rate, which Indian buyer will want to buy olein when
he can get soyoil at a discount of $50?" asked a trader in Kuala
Lumpur.
Dealers said with a projected crop of 60 million tons this
year, South American soya growers seemed poised to take a big
chunk of the Indian market from Malaysia and Indonesia, the
world's two largest palm oil suppliers.
The current rally in Malaysian palm oil also meant that
Indians who had bought forward at $20 to $30 a ton lower than
existing prices could sell at profit and dump the physical oil
back into the local market and buy soyoil, dealers said.
"This defeats the objective of wanting to clear our palm oil
stocks," said another trader in Kuala Lumpur.
The Malaysian government has thought of various ways to get
rid of an additional 500,000 tons of crude palm oil expected in
the market this year in an effort to maintain last year's output
of 10.8 million tons.
Apart from replanting oil palm grounds and burning oil as
fuel, it is also working out a pact with Indonesia to keep prices
competitive and to jointly market palm oil to India and China.
But experts such as private crop forecaster Ivan Wong are
maintaining their estimates that Malaysia will produce around
11.7 million tons of palm oil in 2001.