06/10/012 (Malaysian Reserve) - Local palm oil refiners have been able to return to profitability in recents weeks following a steep fall in the crude palm oil (CPO) prices which has reversed earlier negative profit margins.

The positive profit margins were achieved as prices for CPO, the feedstock or raw material for palm oil refiners, fell while its the prices for its finished product in refined palm oil olein price remained stable, thus broadening their profit margin.

Palm Oil Refiners Association of Malaysia (Poram) chief executive officer (CEO) Mohamad Jaafar Ahmad said the profit margins could be in the range of 1% to 2% depending on various factors, adding that the ideal figure is between 5% and 6%.

He, however, said the reprieve for refiners would likely remain temporary and margins could turn negative once again as CPO prices were likely to stabilise and regain some earlier losses in the coming days.

Mohamad Jaafar told The Malaysian Reserve that refiners have been experiencing negative profit margins and making losses on their operations for the past few months. In the last one month of trade, CPO prices have fallen a whopping RM809.50 or 27% to close at RM2,115.50 on Wednesday.

In the last few days, CPO prices dropped 11% or RM279 from RM2,394.50 on Sept 28.

On Wednesday, Plantation Minister Tan Sri Bernard Dompok said he would move to present the proposal to the Cabinet today proposal to cut export taxes for CPO to between 8% and 10% from the current 23%.

Mohamad Jaafar said Poram was supportive of the plan as it was move in the right direction. However, he declined to comment further as he was not aware of the details, adding that no such proposal was presented to Poram for consultation.

“Poram have not seen the full details of the proposal. However, it is one of the our earlier request to cut export taxes for CPO,” he said.

The news also spurred a rebound in CPO prices for October which gained RM22 to RM2,205 on the Malaysia Derivates Exchange.

On whether the sharp drop in CPO prices could see defaults in CPO contracts, Mohamad Jaafar said so far there has not been any that he was aware of, adding that the low CPO prices could result in industry players cutting down their trade for the moment.

An industry player said the weaker CPO prices have led to some market participants cutting their trades and storing more of their CPO in anticipation of higher prices.

The industry executive said market participants were now more able to withstand rising stocks of CPO after they had invested in building storage capacity in 2001 when they had to clear their rising stocks due to overload in storage facilities at lower prices.