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India May Buy More Malaysian Palm Oil After Reforms, Group Says

India may boost palm-oil purchases from Malaysia after the second-largest producer announced a shakeup of export-tax policy that takes effect from Jan. 1, according to the Solvent Extractors’ Association of India.

At present, the country imports 80 percent of its crude palm oil from Indonesia and 20 percent from Malaysia, and that ratio may shift to 60:40 or even 50:50, Executive Director B. V. Mehta told reporters in Kuala Lumpur. Buyers will have to watch how Indonesia, the world’s biggest producer, reacts, he said.

Malaysia’s Plantation Industries and Commodities Minister Bernard Dompok said Oct. 12 that the country will from 2013 end a duty-free export quota and cut the rate on shipments to a sliding scale of 4.5 percent to 8.5 percent from a levy of 23 percent. Palm oil has tumbled into a bear market as demand growth faltered and stockpiles in Malaysia swelled to a record. India is the largest buyer of palm oil, used in foods and fuels.

“With the removal of the quota and the fixed duty, this will give the opportunity for Indians to evaluate where they’ll get a better price,” Mehta said. “Looking at the current level, Malaysia will benefit out of this new export-tax structure.”

Palm oil for December delivery fell 1.5 percent to 2,462 ringgit ($804) a metric ton on the Malaysia Derivatives Exchange in the morning session. The most-active price -- which declined to 2,230 ringgit on Oct. 3, the lowest level since November 2009 -- has lost 22 percent this year.

Record Reserves

Reserves in Malaysia increased to 2.48 million tons last month, according to data from the Malaysian Palm Oil Board. That was the third increase in monthly holdings, and 46 percent above the level in June. Storage capacity totals 5.2 million tons, Dompok said today, citing the Malaysian Palm Oil Association.

The new sliding scale of export-tax rates makes sense as it will encourage exports if prices are low, helping to keep inventory in check, OSK Investment Bank Bhd. said in a report today. The planned changes should have been introduced immediately as inventory is already at a record, OSK said.

The tax reduction will allow the industry to compete with other exporting countries, the Plantation Industries and Commodities Ministry said on Oct. 12. The planned removal of the duty-free quota was “the best thing” for the industry, according to Malaysia’s Palm Oil Refiners Association.

Reserves in Malaysia may reach 3 million tons by January, according to a forecast on Sept. 23 from Dorab Mistry, a director at Godrej International Ltd. The country’s output may be 18 million tons this year, he said then.

India’s vegetable-oil imports climbed 18 percent to 9.16 million tons in the 11 months to September, the Solvent Extractors’ Association said in a statement today. Palm-oil imports, including crude and refined, bleached and deodorized palm oil, gained 15 percent to 6.74 million tons, it 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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