06/03/05 KUALA LUMPUR (Dow Jones)--Palm oil prices will continue to tradeat a hefty discount to rival soyoil because of unfavorable import dutiesimposed by India, one of the world's largest edible oil buyers, said a topofficial at Malaysia's palm oil promotion and marketing body.
Lee Oi Hian, chairman of the Malaysian Palm Oil Promotion Council, orMPOPC, said India's preferential duty treatment for soyoil imports wasdepressing palm oil prices.
India first raised import duties on palm oil and refined palm oil productssharply in 2001 and has kept them at high levels since.
At the same time, import duties on soyoil, both crude and refined, havebeen left unchanged at 45%, with the rate still in effect today.
"This has created a discount of $80-$100 a ton for palm oil pricesworldwide. This discount will remain until India changes its policy," saidLee, who is also chairman of plantation group Kuala Lumpur Kepong.
India's latest revision on palm oil duties came in mid-February, with thecountry further raising the rates for crude palm oil to 80% from 65% andfor refined palm oil to 90% from 75%.
The increase is expected to put palm oil at a further disadvantage tosoyoil since India is a highly price-sensitive market.
Alongside China and the European Union, India is one of the world's topthree importers of edible oils.
"The main issue here is that India is not having a level playing field forall vegetable oils. Soyoil is being given preferential treatment," Leesaid in an interview on the sidelines of the recent annual Bursa Malaysiaprice outlook conference.
Higher import duties in India effectively requires palm oil exports to bepriced at a discount to soyoil to compete for market share.
"We understand that the duty is the prerogative of the Indian government.But what India must realize is the policy they are exerting is having avery adverse impact on palm oil prices worldwide and on the two mainproducers of palm oil, which are also developing countries," Lee said.
Malaysia is the world's largest producer of palm oil, followed closely byIndonesia.
Lee said he believes if not for India's unfavorable duty structure, palmoil prices would be "much closer" to that of soyoil.
His views were shared by other industry players at the recent conference,including renowned analyst James Fry, who said that because of the sheersize of its imports, India has a major influence in determining the pricedifferential between two of the world's main vegetable oils.
Bio-diesel To Boost Palm Oil Demand
Meanwhile, Lee said he expects bio-diesel to be one of the fastest growingmarkets for palm oil exports in 2005 and subsequent years.
A surge in crude oil prices since late 2004 has prompted governmentsworldwide to boost production of alternative fuel sources.
Increasing calls globally for cleaner-burning fuel to safeguard theenvironment is also likely to boost usage of edible oils for energy.
"Europe is already a very big consumer and within Malaysia itself, we arecreating an energy policy that will use palm oil as a blend with diesel,should palm oil prices fall below a certain level," Lee said.
The Malaysian government has said its policy to promote the conversion ofpalm oil into bio-diesel should be ready for tabling in parliament bymid-2005.
Lee said palm oil prices of around MYR1,000 or below is widely accepted tobe an attractive level for its use in fuel production.
Meanwhile, Europe is already leading the way in the production ofbio-diesel.
Industry publication Oilworld has estimated that bio-diesel production inthe European Union will increase to 2.4 million-2.6 million tons in 2005,up sharply from 700,000 tons in 2000.
Palm oil's position as the world's cheapest oil puts it in a good positionto capitalize on Europe's growing appetite for alternative fuels.
Bio-diesel in Europe currently is mostly produced from rapeseed oil, butthe rapid expansion of the sector means palm oil could soon makesignificant inroads, Lee and other MPOPC officials said.