11/02/2012 (Agrimoney) - Malaysia appeared to have emerged honours even last month in its increasing fierce battle with Indonesia in palm oil trading – beating market expectations on exports, but also on imports too.

Malaysia, overtaken by Indonesia five years ago as the world's biggest palm oil producer, shipped 1.38m tonnes of the vegetable oil last month.

While down more than 13% month on month, the figure beat the 1.35m tonnes forecast by analysts who had expected Malaysia to take a bigger hit from a delay in issuing quota for tax-free exports.

The country reportedly deliberated over scrapping the quota altogether to encourage the preservation of supplies for domestic refiners.

Imports leap
However, optimism at the better-than-expected exports was tempered by a 31% jump, from December, on imports of the vegetable oil – mainly from Indonesia.

At 167,487 tonnes, buy-ins beat market forecasts by more than 62,000 tonnes, and defied expectations that a revised Indonesian tax regime, which incentivises export of refined rather than crude palm oil, would stymie Malaysian purchases.

The increased imports saw Malaysia's palm oil inventories end last month at 2.0m tonnes, a little above market forecasts, and despite a bigger-than-expected dip in production.

Output fell 13.9% month-on-month to 1.28m tonnes in what is a weak month in the Malaysian production cycle, which typically bottoms out in February before recovering to an October peak.

Battle Of The Titans
The data come amid a growing battle between Indonesia and Malaysia for world market share after a long period of production expansion – especially in Indonesia which, according to US data, will produce 25.4m tonnes of the vegetable oil this season, up more than 40% in four years.

Producers are also showing growing interest in West Africa, given increasing difficulties of identifying fresh land in the two countries for oil palm trees, which for climatological reasons require cultivation in a narrow band around the equator.

Indonesia and Malaysia have undertaken "a series of measures to gain a competitive edge over each other," Standard Chartered analyst Abah Ofon said, with the latest set to come at the end of this month when Malaysia clarifies measures to support its industry.

Indonesia has, besides reforming its export tax regime in a move to encourage exports of value-added processed palm oil rather than the raw commodity, unveiled plans to consolidate assets of 15 state plantation firms into one company, PT Perkebunan Nusantara III.

The new group, with pro-forma revenues of about 40,000bn rupiah ($4.5bn) last year, will be listed to encourage investor interest.

Price Impact
However, the sparring, which also comes amid increasing interest in West Africa's palm sector, may be taking its toll on prices.

"While structural demand for palm oil remains robust, such fierce competition between the two largest producers will dampen prices in the near term, particularly given our expectations of strong output this year," Mr Ofon said.

Palm oil, for April delivery, closed 0.5% lower at 3,131 ringgit a tonne in Kuala Lumpur,