CIMB: Malaysian palm oil losing its competitiveness to Indonesia

by **hlk** Wed 14 Mar 2012, 08:45

Higher palm oil stockpile
PETALING JAYA: Last month's higher-than-expected palm oil stockpiles is a clear indication that Malaysian palm oil is losing its competitiveness to Indonesia, said CIMB Research.
Figures from the Malaysian Palm Oil Board showed palm oil stocks rose 2% month-on-month to a three-month high of 2.06 million tonnes as at end-Feb, which was 8% higher than the forecast 1.9 million tonnes.
This was despite a fall of 7.9% in palm oil output due to the seasonal downturn in yields.
CIMB Research said in a note to clients that the higher stocks reflected weaker-than-expected exports and higher-than-expected imports.
It added that Indonesia's palm oil, which was now more competitive thanks to the change in its export tax structure, had led to more Malaysian downstream producers importing processed palm oil from the country.
Indonesia had last October slashed its export tax on palm oil products by more than half, prompting several of the region's large palm oil producers to consider shifting their refining operations there to capture bigger margins.
The move turned margins negative for refiners in Malaysia and the Government has been seeking ways to keep investments flowing into the RM60bil sector.
Malaysia charges a high duty on crude palm oil shipments to protect its domestic refining industry. It does not impose any export taxes on processed palm oil.
“Unless the Malaysian government takes action, this situation is likely to intensify as more refining capacities come onstream in Indonesia in the middle of the year,” CIMB Research said.
It also noted that the government's issuance of tax-free quotas for over three million tonnes of crude palm oil to selected palm-oil players in mid-Feb had failed to boost Malaysian palm oil exports as much as hoped.
Palm oil exports fell 12.6% to a one-year low of 1.21 million tonnes as all key consuming countries other than China and India bought less palm oil, while imports of refined palm oil surged 179% .
The brokerage said exports fell because of a 70% plunge in imports by Pakistan following a second strike by truckers, slower exports to the European Union that could be attributed to the delay in issuing the tax-free quotas by the Malaysian government as well as rising competition from Indonesian refiners.