Palm Oil Poised to Decline After Rebound, Mistry Predicts

Palm oil, the most-used cooking oil, is set to resume its decline in the next few days after a bounce, said Dorab Mistry, director at Godrej International Ltd.

Prices may decline to $749 a metric ton for cargoes delivered in Rotterdam because the export tax in Indonesia, the biggest producer, drops to zero at that level, said Mistry in response to e-mailed questions from Bloomberg. He correctly predicted a slump in futures in July. Crude palm oil was at $800 in Rotterdam yesterday, data compiled by Bloomberg show.

Futures on the Malaysia Derivatives Exchange, the global benchmark, have plunged 22 percent since the end of August as slowing demand increased stockpiles in Indonesia and Malaysia, the biggest producers. Declining prices may reduce revenues for companies including Sime Darby Bhd (SIME) and IOI Corp. and help cap increases in global food costs.

“A bounce is to be expected and natural,” said Mistry. “The market should resume its journey to $749 cif Rotterdam in the next few days. I’m pessimistic about the macro scenario.”

With a decline to $749 and no export tax, palm oil producers in Indonesia would be “better off than at present,” said Mistry. “It also means that Malaysian refiners become competitive once again.”

The contract for December delivery ended little changed at 2,352 ringgit after trading between a 2.3 percent gain and a 1.3 percent loss. Futures fell 8.5 percent to close at a three-year low of 2,255 ringgit on Oct. 2. That was the biggest drop for the most-active contract since October 2008.

Tax Proposal

Indonesia reduced taxes last year to boost exports of processed oil, increasing competition for refiners in Malaysia. When prices of crude and refined palm oil and olein drop below $750 a ton, no export duty is imposed. The country will maintain its export-tax policy, Deputy Trade Minister Bayu Krisnamurthi told reporters in Jakarta today.

A proposal to cut export taxes on crude palm oil to between 8 percent and 10 percent from the current 23 percent will be presented to the Malaysian cabinet tomorrow, Plantations Minister Bernard Dompok said late yesterday.

“Indonesian refineries’ competitive advantage comes from their ability to buy CPO cheaper” because the domestic price is reduced by the amount of the export duty, Alvin Tai, an analyst at OSK Investment Bank Bhd., said today.

The price plunge will give some relief to Malaysian refiners in the short term,said Mohammad Jaaffar Ahmad, chief executive of Palm Oil Refiners Association of Malaysia. Even at these prices, Indonesian refiners had an advantage of at least $40 a ton in production costs, he said.

Stockpiles in Malaysia will continue to expand in October, November and December and may reach as high as 3 million tons by January, Mistry said Sept. 23. Inventories in Indonesia have hovered between 3.5 million tons and 4 million tons since 2010 as against popular estimates of 1.5 million tons to 2 million tons, he said.

To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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