Malaysia will increase shipping quotas for tax-free crude palm oil (CPO) by up to two million tonnes this year to help planters cope with an expected increase in output, sources said as the world's No. 2 supplier struggles to maintain export momentum

Malaysia will increase shipping quotas for tax-free crude palm oil (CPO) by up to two million tonnes this year to help planters cope with an expected increase in output, sources said as the world's No. 2 supplier struggles to maintain export momentum.

The move will lift Malaysia's total duty-free CPO export quota to five million tonnes this year and comes after top importer India this month raised base import prices of refined palm oil, encouraging more crude palm oil shipments.

Both Malaysia and India are trying to retain market share after top palm oil producer Indonesia slashed in September export taxes of refined palm oil, used as a cooking oil, to boost its own processing industry.

“We are doing this on a case-by-case basis for local firms since production is starting to rise in the second half of this year and exports are a bit slow,” said one government official who declined to be named due to the sensitivity of the issue.

“It is a stock management effort. This is in an interim response to Indonesia at the moment. We are still formulating a comprehensive response,” the source added.

Malaysia said Jakarta's export tax cut had eaten into its own refined palm oil shipments and hurt its processors. India shares these concerns, especially as it has spent billions to build up its edible oil manufacturing sector.

Benchmark Malaysian palm oil prices rose 1.6% yesterday, driven partly by concerns of the US drought crimping soyoil supplies and also news of the higher quotas from Malaysia, traders said.

The five million tonnes set aside for export account for 27% of Malaysia's 2012 output of 18.4 million tonnes, potentially lifting local delivered prices of CPO and narrowing their discount to the Indonesian export grade.

The tax-free export quota appears to have turned into a stock management tool for the government.

Production has risen consistently since March this year and is expected to go as high as 1.9 million tonnes in September, the Malaysian Palm Oil Board estimates, which is well within the peak yield season for oil palms.

On the other hand, exports have fallen 18.6% during July 125 to below 990,000 tonnes compared with the preceding month due to a lull in Asian demand, data from cargo surveyors show, which has stirred concerns about oversupply.

“The extra allocation of two million tonnes will benefit the planters more than the refiners,” said a trader with a local refinery. - Reuters

“I am sure that this will be subject to abuse.”

Many traders have criticised the quota system for its lack of transparency, saying licence holders offer tax-free CPO to domestic refiners, allegations planters deny.

Refiners also complain that the export quota create an artificial supply squeeze, raising feedstock prices and lowering margins further.

Some traders said the extra export quota would help support palm oil prices in what is likely to be an election year. Many voters are also small oil palm farmers. - Reuters

Source: www.thestar.com.my