Malaysia will allow shipments of crude palm oil at zero duty for another month in February as the second-largest producer seeks to reduce record stockpiles and boost competition with Indonesia, the top supplier.
“The tax for this coming month will still be zero,” Plantation Industries and Commodities Minister Bernard Dompok said in Kuala Lumpur today. Stockpiles should start to decline and a level below 2 million metric tons will be “quite comfortable,” he said, without giving a timeframe.
Inventories in Malaysia rose 2.4 percent to 2.63 million tons in December from a revised 2.57 million tons a month earlier, according to the Malaysian Palm Oil Board. Palm dropped 23 percent last year as reserves expanded while slowdowns in Europe and China hurt demand. Indonesia, where the tax rate is set at 7.5 percent, is considering cutting it to zero, trade minister Gita Wirjawan said Jan. 11.
“Any actions by either Malaysia or Indonesia, as the two biggest producers of palm oil, will have an impact on prices and the economy,” said Dompok, when asked about possible moves.
Increased competition from Indonesia may erode Malaysian exports and could deepen the bear market in Kuala Lumpur, the regional futures benchmark, while benefiting importers such as India, China and Pakistan. Malaysia may produce 18.9 million tons this year, said Choo Yuen May, director-general of the palm oil board. Output in 2012 was 18.78 million tons, Dompok said.
The contract for delivery in March traded little changed at 2,370 ringgit ($785) a ton on the Malaysia Derivatives Exchange at 5:35 p.m. after climbing 1.4 percent to 2,402 ringgit. Futures fell 4 percent last week, the most since Nov. 9, and are down 2.8 percent this year.
The Malaysian government said in October it would cut the export tax to 4.5 percent to 8.5 percent, from 23 percent, starting Jan. 1, to reduce reserves. The tariff for January was set at zero as the base price was below the 2,250 ringgit threshold that triggers the 4.5 percent rate. Indonesia cut taxes in 2011, making local crude palm cheaper than in Malaysia.
“News that Malaysia is going to extend the zero export tax for February is positive for exports,” Chung Yang Ker, an analyst at Phillip Futures Pte., said from Singapore.
Exports from Malaysia fell 25 percent to 373,462 tons in the first 10 days of January from 499,732 tons in the same period last month, Intertek said Jan. 10. Shipments dropped 34 percent to 343,081 tons, according to Societe Generale de Surveillance. Rabobank International, which in November picked palm as likely to be the best-performing farm commodity in 2013, said Jan. 10 prices will remain range-bound in the coming weeks.
Stockpiles should start declining with the implementation of the so-called B10 biodiesel blending program, the tree replanting scheme spread across 100,000 hectares (247,105 acres) and as economies in consuming countries recover, Dompok said. The B10 program to blend 10 percent of palm biodiesel with petroleum diesel for the “unsubsidized sector,” will raise consumption by 300,000 tons a year, the Ministry of Plantation Industries and Commodities said in a statement in October.
Imports by China, the biggest cooking oil consumer, are set to plunge this month after the government imposed more stringent inspections on shipments. Palm oil purchases may be 300,000 tons in January, less than half of those in December, according to Bloomberg survey published today.
China’s quality watchdog, the General Administration of Quality Supervision, Inspection and Quarantine, toughened inspections on imports from Jan. 1 to improve food safety.
The Malaysian Palm Oil Board has engaged the Chinese authorities on the regulations, said Dompok.
“They are trying to improve food safety generally in China, not just focused on the palm oil industry,” he said. “There’s no clarity yet.”