RI, Malaysia to form palm oil alliance

RI, Malaysia to form palm oil alliance

JAKARTA (Reuters): Malaysia and Indonesia, the world's biggest producers of palm oil, plan an alliance to boost the sagging international price of the commodity, an Indonesian trade and industry ministry official said on Wednesday.

But some traders questioned if an alliance would really help.

Pos M. Hutabarat, director of multilateral cooperation for Asia, the Americas, Australia and Oceania, said details would be discussed by Trade and Industry Minister Luhut Pandjaitan and Malaysian Primary Industries Minister Lim Keng Yaik in Jakarta on Feb. 23.

"This strategic alliance is merely in a form of joint strategies to sell palm oil in a way which will not violate WTO regulations. So we will not form a cartel," Hutabarat told Reuters, referring to the World Trade Organization.

"This will not be in the form of stock retention, because based on experience such retention in other commodities never works well."

Indonesia and Malaysia have been engaged in a price war for some time, as both chased business in an over-supplied market.

Rosediana Soeharto, the head of an Indonesian panel to pave the way for the two nations to cooperate, said the joint strategy would include joint promotion, research and development and efforts to boost investment in oil palm industry.

"The strategy will also include joint efforts to penetrate in new markets and to boost palm oil consumption domestically and globally," Soeharto said.

Soeharto said the cooperation would apply to efforts by both government and private sector.

Indonesian palm oil traders expressed skepticism over the plan, however, saying it was impossible for the two countries to work together. They doubted the strategies would work.

"Malaysia and Indonesia are old competitors, they will not be able to cooperate," said one trader in Medan, North Sumatra.

A Jakarta trader said: "Those strategies won't be able to lift prices because of the oversupply. We may be able to lift prices if we hold back supply."

Traders said domestic palm oil prices were near seven-year lows and have been on a downtrend since the beginning of this year.

They said international prices were also slipping because of abundant supplies from Malaysia and Indonesia and the competition from soybean oil.

"Right now, Indonesia and Malaysia have agreed that we should not compete against each other and that our enemy is the soybean oil," Hutabarat added, referring to the growing popularity of soybean oil. "So we have to join hands to fight."