12 November 2001 (Business Times) - MALAYSIA’S palm oil sector is set forbetter days ahead, at least until the year-end as growing demand boostsexports and strengthens prices. Most industry observers are in consensusand optimistic that crude palm oil (CPO) prices will remain strong,averaging at RM1,200 a tonne for the whole of 2002 or remain rangeboundbetween RM1,000 and RM1,200 a tonne until January. The commodity wastrading in February at RM693.32 a tonne on the spot market, its lowestlevel in more than a decade and a sharp reversal of fortune from the peakof RM2,505.71 in May 1998. CPO prices hovered between RM700 and RM800 atonne, averaging at RM743 in May, RM795.50 in June and RM893 in Julybefore it shot limit-up across the board and breached the RM1,000-a-tonnemark at the Malaysia Derivatives Exchange on July 12, a level not seen in13 months. Since then, prices have climbed steadily and increased 150 percent from RM693.32 a tonne in February to RM1,085 a tonne for the physicalDecember South last Friday. A few weeks after the September 11 attacks onthe US, prices of the commodity plunged to RM850 a tonne; it has sinceclimbed to the RM1,000-a-tonne level.

The palm oil sector has been hurt in the past two years due to intensecompetition from the world’s 16 other edible oils and weak demand. CPOprices may trade as low as RM800 a tonne to a high of RM1,200 a tonne atany time next year, but prices will average RM1,150 a tonne for the wholeof 2002, said a plantation analyst at CIMB Securities. National stock willalso be tightened to 1 million tonnes from 1.3 million tonnes currently,as we enter the low production months caused partly by the monsoon season,she said. She added that sunflower and soyabean harvesting in Argentinaamd Brazil will be held up because of bad weather, which will furtherboost the palm oil sector.

Meanwhile, a trader said India’s move to reduce import duties on CPO to 65per cent from 75 per cent last month also enhances market sentiment. Headded that the market is expected to show continued strength with strongindications from key traditional buyers, namely India, China and Pakistan,of an increase in imports this year. The West Asia region has also shownan increase in demand due to concerns that supply will be disrupted inview of the ongoing military strikes in Afghanistan. Buyers in the regionare cautious that supply may be disrupted on fears the situation mayspread to nearby regions such as West India and Pakistan. And the comingfestive season, namely Deepavali, Hari Raya and the New Year, will alsohelp to spur exports, he said. India bought 2.38 million tonnes in 1999and 2.03 million tonnes last year, while China bought 800,135 tonnes and1.02 million tonnes and Pakistan 1.02 million tonnes and 1.1 milliontonnes, respectively.

Primary Industries Minister Datuk Seri Dr Lim Keng Yaik brought furthercheer to the industry when he announced last Friday that 1.3 milliontonnes of CPO will be allowed to be exported duty-free by seven companiesin 2002. This is on top of the 1 million tonnes already granted duty- freestatus this year. Dr Lim hopes that by introducing the scheme, exportswill grow and the national stock will be maintained below the1-million-tonne mark.

Malaysian Palm Oil Promotion Council chief executive officer Datuk HaronSiraj shared the same sentiment, saying that exports in countries such asVietnam and Myanmar had already shown an increase in demand. As atOctober, export to Vietnam, for example, has already doubled compared withabout 100,000 tonnes for the whole of last year, said Haron.

Meanwhile, Malaysian Palm Oil Association chief executive M.R. Chandransaid the next few months will be favourable to the industry as Malaysiaenters the low production period because of the wet season. Theassociation, which groups 96 plantation companies nationwide, has revisedMalaysia’s CPO production this year to 11.2 million tonnes from 11.5million tonnes. CPO production last year was 10.8 million tonnes. If Chinaenters the World Trade Organisation at this week’s meeting in Doha, Qatar,it will be a further boost to the industry. Uptake will increase when itsannual quota for vegetable oil imports is increased from the current 1.2million tonnes, said Chandran. However, he criticised the US move toallocate an additional US$49 billion (US$1 = RM3.80) to its farmers to besubsidised over the next 10 years. This move is only a detriment to theWTO’s position, which is aiming to reduce trade distortion in the form ofdomestic support,” Chandran said. Towards that end, all agreed that priceswhile favourable at present may never reach the RM2,000-a-tonne level of1997. It is not good anyway. Too high a price can hurt demand and put asqueeze on exports. We are basically happy to see prices at above RM1,000a tonne, which is a good profit margin. What is important right now ismarket access,” said Chandran.

Malaysia is the world’s biggest producer of CPO, exporting 8.32 milliontonnes in 1996 worth RM9.4 billion and 10.38 million tonnes with a salesvalue of RM12.47 billion last year. At the Kuala Lumpur Stock Exchange,the plantation sub-index eased 2.54 points lower to close at 1,480.7points compared to the Composite Index which closed 0.88 points higher at599.45 points. The Malaysian Palm Oil Board is expected to releaseofficial production, national stock and export figures of the sectortoday. At the Malaysia Derivatives Exchange, palm oil futures at thethird-month benchmark January delivery strengthened RM19 to close atRM1,120 a tonne. November and December deliveries each gained RM10 andRM24 to close at RM1,090 and RM1,104 a tonne, respectively. February,March and April deliveries each gained RM19 to close at RM1,135 , RM1,141and RM1,136 a tonne respectively. However, total volume dropped 521 lotsto 2,385 with open positions easing 860 contracts to close at 12,290contracts.