16/01/2013 (Borneo Post) - The plantation sector is abuzz with activities lately with the Malaysian Palm Oil Board (MPOB) painting a healthy outlook ahead for 2013 and Plantation Industries and Commodities Minister Datuk Seri Bernard Dompok announcing the extension of zero tax duty for crude palm oil (CPO) exports to February.

Alliance Research Sdn Bhd’s (Alliance Research) plantations analyst in a report yesterday shared MPOB’s general view that CPO production would be healthy in 2013, barring any weather shocks.

To note, MPOB organised a seminar on Monday to provide the industry with an outlook on palm oil production, export and price trends in 2013.

The analyst cited several speakers’ predictions, namely Datuk Dr Choo Yuen May from the MPOB, Dr Arief Iswariyadi from the Ministry of Agriculture of Indonesia, Govindbhai G Patel from GG Patel and Nikhil Research as well as industry veteran Ling Ah Hong (previously of IJM Plantations).

“Dr Choo’s forecast for production in 2013 was mildly positive at 18.9 million metric tonnes (mt) – against 18.78 million mt in 2012 – which will be driven by new maturities while Dr Arief only stated positive year-on-year (y-o-y) growth,” the analyst highlighted in her report.

“Meanwhile, Ling put forth an estimate of more than 10 per cent y-o-y growth in Indonesia (from an estimate of 28 million mt in 2012) due to large tracts of new maturities coming on-stream.”

One of the reasons for the expectation of positive y-o-y production as highlighted by Ling had been the ample amount of rain seen in the second half of 2012 (2H12) which would help palms through the upcoming dry season production downcycle, the analyst added.

She also highlighted that tree stress might not take any apparent effect this year because of the good weather experienced so far.

“Therefore, we reiterate that a positive production outlook will weigh on CPO prices in 2013 especially if there is no significant pick-up in demand to offset higher production,” she affirmed.

“The risk especially lies with Malaysia, we believe, due to further challenges posed by competition from Indonesian palm oil products.” Meanwhile, looking at the zero export duty being extended into February, AmResearch Sdn Bhd (AmResearch) in a separate report on the sector said this extension would encourage more exports of palm oil in crude form.

This would benefit countries like India, which have palm oil refineries,” it noted.

“In mid-2012, India increased the base price of refined palm olein for the calculation of import duties, for the first time in years.

“The increase in base price was meant to encourage switching from refined palm oil to crude.

The base price is reviewed every two weeks.” AmResearch added that the zero export duty would also support CPO exports to China, bearing in mind that China’s new import guidelines are in respect of refined palm oil and not CPO.

“This means that buyers can buy crude palm oil and then refine it in the country.

Companies with palm oil refinery in China include Golden Agri Resources, which has a refining capacity of 776,000 tonnes per year.” In spite of this, AmResearch opined that most of China’s imports of palm oil would still be in the form of refined palm oil, adding that palm oil refining capacity was not large in China yet due to the cold weather.

“Hence, the zero export duty for CPO for February in Malaysia is expected to be a temporary relief measure, which would help boost exports.

It is a matter of time before the export duty increases.” As such, Alliance Research continued to maintain lukewarm sentiments on the sector, noting it will be a challenge for Malaysian exports to grow this year because of headwinds like competition with Indonesia and new regulations imposed by China.