10/7/2004 - THE favourable long-term outlook of palm oil is expected toneutralise the bearish influence emerging from India’s move to raiseimport duty on refined palm oil, traders said.

India, the world’s biggest consumer of edible oils at 10 million tonnes ayear, on Thursday raised its import duty on refined palm oil to 75 percent from 70 per cent.

India, however, maintained import duty on crude palm oil (CPO) at 65 percent. Its Finance Minister, P. Chidambaram, made the announcement during arecent federal budget speech.

Malaysian Palm Oil Association chief executive M.R. Chandran said anydownward pressure on prices as a result of that will be short-term andminor.

India’s action in increasing import duty on refined palm oil was expectedsince the new Government won the election on the mass rural support.

However, a host of bullish fundamentals should exert considerable upwardpressure on prices in the coming months and the current volatility in themarket is only temporary, Chandran told Business Times in Kuala Lumpuryesterday.

Among the positive factors are China’s unwavering demand for edible oils,low domestic inventories of edible oils, widening use of palm oil in theEuropean Union (EU) and improving demand from the US due to healthreasons, he added.

On Bursa Malaysia Derivatives Bhd yesterday, CPO prices reacted slightlywith spot month July easing 0.4 per cent, or RM6, to settle at RM1,479 atonne.

Chandran expects China’s demand to remain stable despite expectations ofits economy heading for a rough landing.

India’s per capita consumption of oils and fats is around 5kg less thanChina and 9kg less than the world’s average of 20kg.

Indian traders are likely to begin heavy imports of palm oil in the nextthree to four months, especially with the festival seasons around thecorner, despite higher domestic production expectations.

Chandran said there is also a widening use of palm oil in the EU given itsconcerns on genetically-modified soya and corn, and switching of tallowsto vegetable oils in industrial manufacturing. There is also an improvingdemand from the US due to its search for trans-free fats in view of thecoming into force of food labelling by 2006.

India in the past had given its undertaking to review the high duties ithad imposed on imports of the commodity with a view of not to burdenMalaysia. This pledge was made by its former Prime Minister Atal BihariVajpayee during bilateral talks with Malaysia’s former Prime Minister TunDr Mahathir Mohamad in Kuala Lumpur in May 2001.

India imposed its heaviest-ever import duty of 75 per cent on CPO and 85per cent on refined palm oil in February 2001 to stem imports and protectthe local industry.

This compares with 45 per cent on rival soyabean oil.