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Mahamad Rodzi Abdul Ghani




Mahamad Rodzi Abdul Ghani


The Star



Better playing field for refineries
Monday, May 05, 2003 - MALAYSIAN palm oil refineries will be able tocompete on a better playing field with other oil seeds in India followingthe Indian government's decision to reduce the tariff on refined, bleachedand deodorised (RBD) palm oil and palm olein, said Malaysian Palm OilAssociation (MPOA) chief executive M.R. Chandran.

Last week, India slashed the custom duty on RBD palm oil and palm oleinfrom 85% to 70% as well as abolished the 4% special additional duty (SAD)imposed on these items.

Chandran told StarBiz: Malaysia has been aggressively lobbying the Indiangovernment to further reduce palm oil tariffs as part of its efforts tonarrow the differential in import duties between RBD palm oil, crude palmoil (CPO) and soyabean in India.

It is good to note this has started to bear some fruit, he said, addingthat the move was definitely a positive development to the palm oilindustry, particularly to the 100 local refiners nationwide.

Crude palm oil (CPO) and soya bean are currently subject to a basic importduty of 65% and 45% respectively, and the SAD does not apply to bothproducts. At the same time, India has also revised an 8% excise duty onbranded and packaged refined edible oil with a fixed duty of 1,000 rupeesper tonne.

Chandran also believes that India would buy more processed palm oilagainst CPO as the gap between import duties on CPO and RBD palm oil hasnarrowed substantially from 22.4% (including SAD) to the current 5%.

Given the anticipation of higher processed palm oil exports to India, thiscould translate into potentially higher refining volume and profits tolocal refiners, he added.

He expects the downtrend in the price of CPO (in the futures market),currently trading below RM1,400 per tonne, to be sustained in view of thedemand for this value-added processed palm oil, and this in turn wouldhelp to reduce CPO stocks.

Last year, India was the second largest buyer of Malaysian palm oil at1.68 million tonnes, after China which bought 1.84 million tonnes.

Plantation analysts said under normal circumstances, it makes more sensefor Malaysia to sell processed palm oil rather than CPO because on theaverage, an additional RM20 to RM25 per tonne profit could be made out ofselling the higher value added processed palm oil as compared to CPO.

Malaysia primarily exports processed palm oil to India while Indonesia isthe major exporter of CPO. Last year, only 11% of Malaysia's total palmoil exported was in the form of CPO.

Mayban Securities believes that the tariff cut in processed palm oil, wasalso due to India's inability to cope with the high demand from itsconsumers. “The drought has severely hit India's crops last year and therewas also shortage at inventory level,” it added.

Meanwhile, industry newsletter Oil World said palm oil producers werestepping up production to meet rising demand from India, the world'slargest edible oil importer, and China.

It said India was expected to import 3.58 million tonnes of palm oil inSeptember this year, 11% more than a year earlier.

Oil World said palm oil production was expected to increase by 4% in fourmonths' time, boosted by higher output in Malaysia and Indonesia, the topproducers of the edible oil.

The world's largest palm oil producer, Malaysia would see its productionrising by 2.5% to 12.1 million tonnes and Indonesia, the second-largestproducer, would boost output by 6% to 9.3 million tonnes.