Vajpayee's KL visit may not bring palm oil deal

Vajpayee's KL visit may not bring palm oil deal

KUALA LUMPUR (Reuters): This month's visit by Indian Prime
Minister Atal Behari Vajpayee is unlikely to answer Malaysia's
prayer that the world's largest edible oil consumer buys more
palm oil in exchange for a $1.8 billion railway project, traders
said on Friday.

Malaysia, the world's largest palm oil producer, has offered
New Delhi a contract involving the dual tracking and
electrification railway lines from Ipoh city to Padang Besar in
Peninsular Malaysia, hoping India would buy more palm oil.

Vajpayee is expected to sign the agreement during a visit
scheduled to start on May 14 through 16.

"Do you expect India to change its buying pattern overnight
only because of the visit? I don't see a reason why the market
should get excited about the trip," said one trader in Kuala
Lumpur.

Malaysia's crude palm oil futures rose earlier this week in
anticipation Vajpayee's trip would yield positive news to a
market desperate for fresh leads.

The railway project offer was the latest move by Malaysia to
help reduce domestic stocks, which reached a record high of 1.52
million tons last November due to poor exports and stiff
competition with arch rival Indonesia.

But some players later realized there was no guarantee India,
which was Malaysia's main palm oil buyer in 2000, would accept
payment for the project in the form of palm oil. India purchased
2.03 million tons of Malaysian palm oil last year.

In February, India imposed its heaviest-ever import duty of 75
percent on crude palm oil and 85 percent on refined palm oil to
stem imports and protect the local industry.

"This is very big money for India, which it may use for the
country's infrastructure development...," said another trader.

"$1.8 billion is big money and the prime minister will be very
happy to sign the agreement. But we don't know if the document
will include a clause which mentions palm oil.

"Nobody in India has ever mentioned a clause about palm oil."

Malaysia and Indonesia, the world's largest palm oil
producers, urged India to cut palm oil import duties to 45
percent to make it at par with soybean oil.

Both countries have agreed to join hands to promote palm oil
and gain more access in giant markets such as India and China.

Traders and analysts in India said this week the country was
unlikely to give in to demands from Malaysia and Indonesia for
rationalizing edible oil import tariffs because of low domestic
prices and the impending oilseeds season.

But they said the possibility of counter-trade could be
explored during Vajpayee's visit.

Some traders in Malaysia were still optimistic.

"I am sure (Vajpayee) will talk about a palm oil deal. There
will be something later but I don't think you'll be exposed to
the details when doing business with India," said one trader.

In Jakarta, a senior government official said Malaysia and
Indonesia will meet in June to discuss plans to harmonize palm
oil export taxes and reduce price gap.

"Indonesia and Malaysia expect to impose similar export
tariffs to avoid tight competition in the world's market," said
Rosediana Suharto, an aide of the trade and industry minister.

Traders said Indonesian palm oil is normally sold at a $5
discount to Malaysian products.

Malaysia's palm oil futures failed to sustain the 800 ringgit
level and closed lower in directionless trade after the central
bank denied it would issue any statement on the ringgit peg.

Benchmark third-month July futures ended down two ringgit at
795 ringgit ($209.21) a ton after trading as high as 800 on
rumors that Malaysia would re-peg the ringgit.

Palm oil traders said the government needed to ease the peg
because the weakening of the Indonesian rupiah has sparked
aggressive sales from the world's second largest palm oil
producer after Malaysia.

In the physical sector, May crude palm oil (CPO) for the
southern region was offered at 770 ringgit a ton against bids of
765. Deals were reported at 760 to 770.

May CPO for central region saw offers at 765 ringgit a ton
against bids of 760 ringgit. Trade was at 760.

June CPO for the southern and central regions was offered at
790 ringgit a ton against bids of 785 and trade reported at 785
to 790 for both regions.