March 5 2004 - DEMAND for Malaysian palm oil may increase in the nearterm following Indonesia’s higher tariff and China’s larger appetite.

Industry sources said China is expected to buy up to 3.2 million tonnes ofpalm oil products from both Malaysia and Indonesia this year, up 3.2 percent from 3.1 million tonnes last year.

Indonesia may impose higher duty on exports of crude palm oil (CPO) toincrease earnings and protect its domestic refiners from paying a highprice for the raw material.

China’s Pansun Cereals & Oils Online deputy general manager Tian Yu saidimports of oils and oilseeds in 2004 are expected to rise in line withrapid economic development and improvement of living standards in therepublic.

Imports of oils and oilseeds will rise due to the big shortage in domesticsupplies, Tian told participants in Kuala Lumpur at the 15th Annual Palmand Lauric Oils Conference and Exhibition.

At the same event, Indonesia’s PT Smart Tbk vice-president director TanSiauw Liang said the country may raise the duty from the current 1 percent to as high as 60 per cent. Processed oil carries a duty of 3 percent.

This would translate into earnings of up to US$300 million (US$1 = RM3.80)to Jakarta and the measure is also aimed at narrowing the gap in profitsmade by the CPO producers and the refiners who depend on CPO to makeprocessed oil,said Tan.

He said Indonesia’s CPO producers are reaping the benefits of high priceswhich have gained threefold since the middle of last year.

The move is also aimed at ensuring low domestic prices of CPO and preventcooking oil prices from skyrocketing, said Tan.

He said Indonesia had imposed the duty before in 1998 at 45 per cent togive refiners a chance to compete with CPO producers who were reaping thebenefits of high prices then.

Indonesia, which is the world’s second largest producer of palm oil,exports mostly CPO to countries such as India.

An industry official said the move by Jakarta augurs well for CPO pricesas it would limit CPO supply to the world market.

Traditional buyers such as India would be forced to look elsewhere and inthis case, Malaysia is the only other major producer.

In his working paper, Tan said Indonesia is expected to produce up to 11million tonnes of CPO in 2004,of which up to 8 million tonnes are forexports. The republic exported 6.7 million tonnes last year.

Meanwhile, Tian said the shortfall in China’s domestic oil supplies in2003 is projected at around 8-9 million tonnes which is made up mostly byimporting oil and oil seeds.