05/11/2008 (Business Times) - MALAYSIA'S palm oil industry, the second largest producer of the commodity, could get a respite from low margins thanks to a government move to scrap import duty on fertilisers, Affin Investment Bank said today.

Palm oil prices have plummeted nearly two-thirds from a March peak of RM4,486, squeezing margins for smallholders, who account for nearly 60 per cent of the Southeast Asian nation’s total production.

Deputy Prime Minister Datuk Seri Najib Razak announced yesterday that the 5 per cent duty on 7 imported fertilisers was to be scrapped.

“On fertilisers, usage cost is approximately RM1,600 per hectare,” Affin said in a research note.
 
“Hence, scrapping the import duty is estimated to boost net profits by 0.5 per cent to 2 per cent, equivalent to the impact of a RM20/tonne increase in crude palm oil price.”

A level of RM1,500 a tonne — 15 per cent below current levels — represents the break even point for plantations, which face a margin squeeze as fertiliser and other farm costs stay strong.

The benchmark January palm oil contract on the Bursa Malaysia Derivatives rose as much as RM122 to RM1,700 per tonne today within the first few minutes of trade.

Malaysia’s import bill for fertiliser, used mostly by the palm oil industry, is likely to nearly double to RM5 billion this year as global prices flare on strong demand, the government has earlier said. -Reuters-