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Date
 27/03/2008
News Provider
 Kamar Nor Aini Bt Kamarul Zaman
News Source
 The Hindu Business Line
Headline
 Global palm oil gains 9% on Customs duty cut

26/03/2008 (The Hindu Business Line), Chennai - Crude palm oil had peaked to $1,486 a tonne on the Malaysia Derivatives Exchange on March 4. By March 19, it had shed 25 per cent of the gains to slip to $1,064.20. Then, on March 20, the Centre announced a cut in Customs duty on all crude and refined cooking oils, except soyabean oil, as part of its effort to rein in inflation.


Trigger
But as it had happened on the previous occasions, the duty cut only proved to be a trigger for crude palm oil to rebound. On March 21, it shed about four per cent initially following fall in prices of soyabean on the Chicago Board of Trade. But once the impact of the Indian Customs duty cut was digested, it pared all the losses. Domestic prices were, however, a little lower than March 20 prices on Wednesday.


On Monday, palm oil stabilised at $1,064.20, but on Tuesday and Wednesday, it made headway to close at $1,160 a tonne, a gain of nine per cent. In between, Indonesia has taken this opportunity to double its crude palm oil tax to 20 per cent. From April 1, the base price on which the tax will be levied by Indonesia will be $1,196 a tonne against the current $988.


Chance to hike
“Indian Customs duty cut has always helped the producers of palm oil rather than the customers. Whenever the Centre has announced that it was slashing duty, countries such as Indonesia have taken the opportunity to jack up the prices,” says Mr B.V. Mehta, Executive Director of the Solvent Extractors Association.


Palm oil, in particular, has proved to be the beneficiary since soyabean oil has been left out of the cut. The first time the Centre cut the duty was on January 25 last year, when the levy on crude edible oils was cut by 10 percentage points and on refined oils by 12.5 percentage points. On April 13 last year, the duty was further cut by 10 percentage points for all cooking oils before the Centre again slashed the duty by another five percentage points on July 23. The latest was on March 20 last.


During this period, benchmark crude palm oil contracts have gained from $531.41 (on January 25, 2007) to $741.90 (July 23, 2007) to the current level.


Upper circuit
On the other hand, soyabean has been gaining in the global market during the last two sessions, mainly in view of a strike by Argentinian farmers during the last two weeks. They are protesting against the President, Ms Cristina Fernandez’s move to increase export taxes for soyabean. With both parties refusing to budge, exporters there have announced default or shifted orders to the US, leading to rise in prices. On Tuesday and Wednesday, soyabean hit the upper circuit on Chicago Board of Trade with May contracts rising to $498.53 a tonne (13.57 a bushel) from $443.42 ($12.07) during the weekend.


“The move to leave soyabean oil from the duty cut leaves consumers with no choice but to buy palm oil,” said Mr Mehta.


However, the solvent extraction units are pressing for a cut in soyabean oil duty as well. A Commerce Ministry official, earlier this week, said it was on the cards.


Fears
Trade sources said soyabean oil was left out on the fears that it could affect farmers in Madhya Pradesh, the country’s hub of soyabean, and a record 94 lakh tonnes crop.


Trade sources said soyabean oil would be badly required during April-June, particularly for small refining units, since the soyabean stocks would have been exhausted by then. “Only big refiners can utilise palm oil. Small refiners certainly need soyabean oil,” they said.


 


ECONOMICS & INDUSTRY DEVELOPMENT DIVISION
Malaysian Palm Oil Board ( MPOB ) Lot 6, SS6, Jalan Perbandaran, 47301 Kelana Jaya, Selangor Darul Ehsan, MALAYSIA.
Tel : 603 - 7802 2800 || Fax : 603 - 7803 3533