5/5/2003 - MALAYSIA has an advantage over Indonesia to capitalise on India’s reduction of basic import duty on processed palm oil.

Traders said India is likely to buy more palm oil from Malaysia than fromIndonesia because Malaysia is primarily an exporter of refined palm oiland Indonesia an exporter of crude palm oil (CPO).

Malaysia’s downstream refining sector is much more active and developedthan Indonesia’s.

Malaysia’s plantation sector has always given emphasis on research anddevelopment to pave the way for new processed palm oil products whileIndonesia just follows the trail that Malaysia has made, a trader toldBusiness Times last Friday.

India on Wednesday cut the basic import duty on refined, bleached anddeodorised (RBD) palm oil from 85 per cent to 70 per cent. It alsoabolished the 4 per cent special additional duty (SAD), effectively a 7.4per cent cut as SAD is calculated based on the palm oil price after importduty.

The move is to narrow the price differential between RBD palm oil and CPOand soyabean oil. CPO and soyabean oil are currently subject to a basicimport duty of 65 per cent and 45 per cent respectively, and SAD does notapply to both products.

India was the second biggest buyer of Malaysian palm oil last year, buying1.68 million tonnes after China which bought 1.84 million tonnes or 16.9per cent.

Meanwhile, Affin-UOB Securities Sdn Bhd said the differential in importduties was designed to protect India’s domestic refining sector.

The original intention of the Indian Government imposing a higher importduty on RBD palm oil vis-a-vis the CPO was to encourage and protectdownstream vegetable oil refining activities in India, it said in aresearch note.

It added that India is likely to buy more refined palm oil (RBD palm oilbeing one type) than CPO as the gap between import duties on CPO and RBDpalm oil has narrowed substantially from 22.4 per cent (including SAD) tothe current 5 per cent.

In 2002, only 11 per cent of Malaysia’s total palm oil was exported in theform of CPO. Indonesia’s CPO exports as a percentage of total palm oilexports are unknown in the absence of published statistics but arebelieved to be much higher than Malaysia’s.