25 March 2002 (Business Times)A RECENT move by the US to increase tariffs on steel imports has been seenas the main reason behind China’s delay in purchasing Malaysia’s palm oil.Traders said China is possibly retaliating against the US’ increase bydelaying its purchase of soyabean, which unfortunately drags down othercommodities such as rapeseed, sunflower as well as palm oil.The US is a major producer of soyabean oil and has interests in otherproducing countries such as Argentina and Brazil.“The delay could be a form of a trade reprisal to the US carried out byChina to halt soyabean imports which unfortunately also affects palm oil,”a trader told Business Times in Kuala Lumpur yesterday.President George W. Bush announced on March 6 a tariff increase of up to30 per cent on most steel imports entering the US for three years which isalso subjected to quotas.Steel producing countries around the world and even the US press reactedfuriously to the US protectionist measures with some of them threateninglawsuits and trade reprisals.The European Union and China are two of the world’s major steel producersand are in the midst of lodging a formal protest to the World TradeOrganisation (WTO).China, Malaysia’s third biggest palm oil buyer last year at 1.28 milliontonnes, has set a 2.4 million tonne quota of the commodity this year undera WTO committment.The republic was widely speculated to have entered the market in Januaryin order to meet the WTO ruling, a move that has been delayed to this day.The quota is open to all palm oil producers which include Malaysia’s rivalIndonesia. China previously announced its palm oil quota twice a year withthe first 700,000 tonnes tranche in March and the second 700,000 tranchein June.In 2000, the quota was 1.5 million tonnes, of which it bought 800,135tonnes of Malaysia’s palm oil. Last year, the republic imposed a quota of1.4 million tonnes of which it bought 1.28 million tonnes. The quota hasbeen raised to 2.4 million tonnes since its full-fledged formal entry intothe WTO last December 12 to become its 143rd member.China’s State Development and Planning Commission (SDPC) also announced apalm oil quota for 2003, 2004 and 2005 which stands at 2.6 million tonnes,2.7 million tonnes and 2.88 million respectively.SDPC also announced the quota for soyabean which stands at 2.518 milliontonnes for 2002, and 2.5 million tonnes, 2.85 million tonnes and 3.26million tonnes for 2003, 2004 and 2005 respectively. While rapeseed quotafor 2002 through 2005 stands at 770,000 tonnes, 880,000 tonnes, 996,000tonnes and 1.13 million tonnes respectively.It is understood that as a backlash to the US steel curbs, SDPC’sdistribution of licences to Chinese importers who wish to import thecommodities has been delayed. Chinese importers must first obtain approvalfrom SDPC before it can import the commodities.“It is already approaching end-March and China has yet to name theimporters let alone enter the market,” said the trader.“No one is really sure what is going on but I suspect it has something todo with China taking a swipe back at the US on the steel issue,” he said.The trader added that since it is already approaching April, China isunlikely to import 2.4 million tonnes of palm oil by year-end.“We estimate that only 70 per cent or 1.68 million tonnes of both Malaysia’s and Indonesia’s palm oil will be bought by the republic,” he said.He added that for China to meet the 2.4 million tonnes quota, a monthlyshipment of 200,000 tonnes must be made to the republic until December.“But in January and February, only 44,848 tonnes and 89,411 tonnesrespectively were shipped from Malaysia, a far cry from the targetted200,000 tonnes per month,” said the trader.He added that it is also a mystery how shipments can still be made toChina when SDPC has yet to announce the importers.Malaysia is the world’s largest producer of palm oil. Malaysia produced11.803 million tonnes last year of which 10.593 million tonnes wereexported to 140 countries.