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.