01/04/2013 (Live Trading News) - ASEAN, Felda Calls for Duty-Free Palm Oil to Combat Reserves.

Felda Global Ventures Holdings Bhd. KL:5222, said that Palm Oil shipments from Malaysia, the largest producer after Indonesia, should be allowed Duty-Free for some companies until mid-year to help reduce near-record stockpiles.

There’s a risk reserves will be carried into 2-H unless they are cleared, Sabri Ahmad, CEO of the 3rd largest operator of palm plantations, said in an interview.

Government programs, such as increased blending of palm in biodiesel, known as B10, should be speeded up, Sabri said yesterday. Exports in March are set to be taxed at 4.5% after 2 months of Duty-Free shipments.

The world’s most-used cooking oil is stuck in a Bear market as supply and stockpiles have risen to records, highs and Sabri’s comments reflect producers’ concern that the reserves need to be reduced to pave the way for a rebound in prices.

“If you have duty-free from Malaysia just for a short period only until June to clear stocks, this will help,” Sabri said in his office in Kuala Lumpur, proposing that the break apply to so-called integrated companies that have local estates and refineries overseas. If something new isn’t done, “it’s going to be burdensome stocks going into October,” he said. Malaysian supply typically peaks in September or October.

Palm, harvested year-round in Southeast Asia, is used in foods, biofuels and cosmetics.

The most-active price on the Malaysia Derivatives Exchange, a regional benchmark, has lost 27% over the past year, and finished at 2,410 Ringgit ($778) a ton Wednesday. Futures fell 23% last year, extending a 16% decline in Y 2011, as reserves in Malaysia reached 2.63-M tons in December, the highest level ever.

To spur a drop in the stockpiles, Malaysia’s government replaced from 1 January an export tariff of about 23% and an annual Duty-Free quota with a sliding-scale levy from 4.5 to 8.5%. With prices below the mark that triggers the lowest rate, shipments in January and this month have been Duty-Free.

An extension of tariff-free shipments from Malaysia in line with Sabri’s suggestion would boost the challenge to Indonesia. While the Indonesian Palm Oil Association has urged lower taxes in that country, Southeast Asia’s largest economy will probably maintain its policy, Fadhil Hasan, executive director at the group, said on 5 February.

Deputy Trade Minister Bayu Krisnamurthi said on 7 February that the government would stick with its approach for now, according to a text message. Indonesia’s rate for March has been set at 10.5 from 9% this month.

Stockpiles in Malaysia held near the record in January, according to the Malaysian Palm Oil Board. While production fell 10% last month compared with December, it was still 24% higher than a year earlier. Global stockpiles will gain to a record 7.203-M tons this season, according to a projection from the US Department of Agriculture.

Output in Malaysia will total 18.9-M tons in Y 2013, matching the biggest-ever crop in Y 2011, the Malaysian Palm Oil Board forecasts. Indonesia may harvest a record 30-M tons as more trees mature, Derom Bangun, chairman of that nation’s board, said in Jakarta on 18 February.

Total crude palm CPO output at Felda Global and its associates may be 3.3-M tons this year, said Sabri. That’s slightly above last year’s 3.285-M tons, according to data from the company. Although a replanting program will continue, the effect will be offset by new trees reaching maturity and a higher oil extraction rate, he said.

Felda Global’s Q-4 net income fell 36% to 179.6-M Ringgit in Quarter ending on 31 December from a year earlier, the company said this week. Revenue doubled to 3.86-M Ringgit. The company completed a $3.3-B initial public offering in June, is looking at acquisitions both locally and overseas, Sabri said, without giving any details.

The company has appointed Mohammed Emir Mavani Abdullah as CEO designate with effect from 1 January as Sabri’s contract as group president and CEO expires on 15 July, it said in a stock- exchange filing on 2 January The company’s shares closed at 4.43 Ringgit Wednesday, 4.1% lower on the year.