15/09/2011 (Reuters) - Following are some of the higlights of a Reuters interview with Palm Oil Refiners Association of Malaysia (PORAM) Chief Executive Mohammad Jaaffar. For the full story, see

IMPACT ON THE REDUCTION ON INDONESIAN EXPORT DUTY

"With these overall reductions in Indonesian export duty, it will means that all their bulk products will now be very much cheaper in terms of production than similar refined Malaysian palm oils in the export market."

"Even without this latest lower export duty, the Malaysian industry have been paying around 600 ringgit more compared to Indonesian refiners in getting their crude palm oil (CPO) supply in March this year (and now about 300 ringgit based on September CPO prices)."

"When this CPO is converted into refined palm products and exported, Malaysia was already at a disadvantage of 60-80 ringgit per tonne. With the new Indonesian export duty in September 2011, the discounted margin of Indonesian refined palm oil will be much wider."

IMPLICATION FOR THE MALAYSIAN PALM OIL REFINERS

"The Malaysian palm oil refiners have been resilient in producing and marketing their refined products despite an overall negative margin in 2010."

"On average, the expected operating profit margin for the refineries should be 5 percent in order to be competitive against Indonesian."

"By more than halving the Indonesian export duty in September 2011, this will make the situation more critical and would almost render Malaysian refined palm products non-competitive against the Indonesians."

"To illustrate the grave situation, Malaysia has lost a total of 261,809 tonnes or, in terms of value, 1.19 billion ringgit worth of palm oil finished products (i.e. packed products) between 2010 and 2008."

"This is mainly because of cheaper raw materials and lower export duty imposed by Indonesian Government for that market sector."

WHAT REALLY IS THE PRICE ADVANTAGE?

"PORAM has done a quick simulation calculation on the impact of RBD Palm Olein price. Based on the August Export Duty for Palm Olein from Indonesia at 15 percent, the Indonesian RBD Palm Olein free on board (FOB) is $1,159 per metric tonne."

"The Malaysian RBD Palm Olein FOB will cost almost the same at $1,157.50 per metric tonne. Therefore both Indonesian and Malaysian RBD Palm Olein is about the same price."

Once the Indonesia reduces its export duty for Palm Olein to 7 percent in September 2011, it would mean that the new price for Indonesian RBD Palm Olein FOB would be much cheaper at $1,066.72 compared to Malaysian RBD Palm Olein FOB at $1,157.50.(Calculation based on 8 September 2011 prices)

MALAYSIA'S REFINING SECTOR

"At the end of 2010, there were a total of 51 palm oil refineries in operation with a total annual capacity of 22.89 million tonnes."

"An additional 25 refineries mainly in Sabah and Sarawak with a combined annual capacity of 9.64 million tonnes are still at various stages of planning and construction."

"This brings the total number of refineries approved as at the end of 2010 to 78, with a total annual capacity of 32.71 million tonnes."

"In 2010, a total of 17.36 million tonnes of palm oil feedstocks were processed by the refineries. Crude palm oil (CPO) accounted for 15.72 million tonnes (90.6 percent) followed by crude palm kernel oil (CPKO) with 1.64 million tonnes (9.4 percent)."

"The overall refining utilisation rate is therefore at 75.9 percent."

"Malaysia imported about one million tonnes of CPO and 445,066 tonnes of CPKO mainly from Indonesia in 2010."

"We foresee that with this new Indonesian export duty structure, there will be less CPO available for export from Indonesia. This will put some pressure in the supply of CPO for our local refiners."