25/11/05 JAKARTA (Dow Jones)--China will remove import quotas on edible oils in 2006, but that won't lead to a dramatic increase in Indonesian palm oil exports to China, as increasing competition from soyoil will make it difficult for Indonesia to aggressively compete for added market share, analysts said.
"China's palm oil demand may not rise dramatically because they can get soyoil by processing imported soybean," said Derom Bangun, chairman of Indonesian Palm Oil Association, or Gapki.
China is a major importer of soybeans as it also consumes large amounts of soymeal for its livestock and poultry industry.
From January to October this year, China imported 21.42 million metric tons of soybeans, up 38.1% on year, according to the General Administration of Customs of China.
According to an official at the Institute of Market Economy affiliated to China's Development Research Center, the country is projected to import a net 36.32 million tons of soybeans a year by 2020.
In 2004, China imported 20 million tons of soybeans.
China has been gradually rising its import quota for edible oils following its entry to the World Trade Organization in 2002.
Next year, the import quota system will be completely abolished and replaced by fixed import tariffs of 9% on all edible oils.
The country's quota for palm oil products is around 3.168 million metric tons for 2005.
Palm oil imports by China are expected to see a gradual rise once a tariff-based import system is introduced.
Derom estimated China's palm oil demand to rise by 10% after the import quota system is replaced next year.

China To Import More CPO, Less Refined Products

While overall palm oil imports into China are expected to go up, seasonal weather in the country with long winter months will limit the country's demand for palm oil, said Benny Tjoeng, vice president of PT Astra Agro Lestari, a leading palm oil producer and exporter in Indonesia.
"Palm oil gets frozen in cold weather, so they prefer to use soft oils," he said.
However, Dorab E. Mistry, director of U.K.-based Godrej International Ltd. said China will import more CPO than refined products after the import quota system goes, in a bid to create value-addition in their own country.
This could be advantageous to Indonesia which exports most of its palm oil in crude form while rival Malaysia mostly exports refined products.
"Chinese demand will change from refined (palm oil) products to crude product because they are putting up their own refineries," Mistry said.
Indonesia is world's biggest palm oil producer after Malaysia, producing an estimated of 13.6 million tons this year.
"When China lifts their import quota system, it will be very positive for Indonesia," said Tjoeng of Astra Agro.
Indonesia expects to export 1 million tons of palm oil products to China in 2006, up from an estimated 700,000 tons this year, said Derom.
Godrej's Mistry, however, warned an expected rise in China's CPO imports may not necessarily work in favor for Indonesia.
"It looks like (China's removal of quota system) will benefit Indonesia, but Malaysia could change their policy (of not exporting much of CPO)," he said.