Monday July 4, 2005 (The Star) - THE elimination of the import tariffrate quota on edible oil in China from next year, coupled with risingconsumption of the product there, augur well for palm oil, which hasgained popularity in the country.

"The import of palm oil into China will not be subject to any barrier whenthe quota is phased out. This would help boost palm oil demand in China,’’Malaysian Palm Oil Promotion Council (Shanghai representative office)director Teah Yau Kun told StarBiz in an interview here.

The abolishment of the tariff rate quota is part of China’s commitment tothe World Trade Organisation (WTO) since it became a member in December2001.

Teah noted that the compliance with the WTO gave some certainty to palmoil exporters like Malaysia, which accounted for 70% of the palm oilsupply in China.

Investment analysts concur that at least palm oil traders do not have toworry about changes in the import tariff – a common measure adopted byIndia to curb imports of edible oil to protect its domestic farmers.

They said the abolishment of the import tariff quota might not result inany significant impact on the crude palm oil price as the quota had beengradually increased. However, they reckoned that it would further boostpalm oil demand and in turn, lend support to prices.

For palm oil, the quota has been expanded from 2.4 million tonnes in 2002to 3.168 million tonnes this year.

Although China is a major oilseed producer with production level reaching50 million tonnes annually, it still needs to buy more edible oil to feedits growing demand in recent years.

"China is definitely a big, growing edible oil market for us to tap into,"Teah said, noting that its import of palm oil had expanded to millions oftonnes now from a meagre 50,000 tonnes in 1986.

The country is the largest importer of palm oil from Malaysia, followed bythe Netherlands, India and Pakistan.

Last year, China purchased nearly 2.8 million tonnes valued at RM4.87bil,compared with India that imported 0.9 million tonnes worth RM1.68bil,according to statistics released by the Malaysian Palm Oil Board. TheNetherlands, meanwhile, imported 1.15 million tonnes valued at RM1.85bil.

The numbers from China’s General Administration of Customs show that palmoil is the third largest item, in terms of volume, imported by China fromMalaysia last year. Electrical and electronics items are on the top of thelist, accounting for nearly 55% of the goods imported from Malaysia.

Unlike in India, palm oil is not common cooking oil in the Chinesehouseholds due to the cold weather. Palm oil solidifies when temperaturedrops during winter so the Chinese prefer other edible oil such as soybeanoil or rapeseed oil. Furthermore, they need the oilseeds that can becrushed for oil and animal meals.

However, palm oil, as a form of semi-solid fat, had its own propertiesthat were treasured by the food (instant noodles, biscuits and snacks) andoleochemical industries, said Teah, who has been striving to promote palmoil to the Chinese for nearly 20 years.

Hence, in China, palm oil is primarily for industrial usage.

Palm oil started to gain popularity when instant noodles were introducedto China.

"The Chinese manufacturers never wanted to switch to other oil after usingpalm oil. Other oils can’t substitute it. And it is economical," saidTeah.

China is the world’s biggest consumer of instant noodles, followed byIndonesia and Japan. Its consumption in 2003 was almost 28 million packsand that is on the rise. This means stronger palm oil demand for instantnoodle production.

The oleochemical industry is a new growth area for palm oil in China.

Teah said the improving standard of living among the Chinese would spurdemand for items such as soap, detergent and beauty products, whose rawmaterials included palm oil-based oleochemicals.

In his view, Malaysians should also explore downstream activities inChina, besides solely selling raw commodities.

He said palm oil-based oleochemicals were still relatively new on themainland, so there was room for new entrants.

According to Teah, there are currently three oleochemical plants in China,of which two are owned by Malaysians - Robert Kuok’s Kerry Group and KLKepong Bhd - in Shanghai.

"This will be another driving force for palm oil demand, should thedevelopment on the palm oil-based downstream activities take off here,’’said Teah.