Saturday March 3, 2012

Indonesia refining advantage to dominate palm oil meeting

KUALA LUMPUR: Top palm oil producer Indonesia's growing refining advantage over No. 2 supplier Malaysia will dominate an annual gathering of the world's palm oil business in Kuala Lumpur next week as traders examine shifts in demand.

Planters, refiners and bankers gather for the Bursa Malaysia Palm Oil Conference from Monday to Wednesday as the market for the tropical oil grows this year at the expense of soyoil, with the South American soy crop damaged by drought.

That and soaring Brent crude oil have lifted the benchmark palm oil futures on Bursa Malaysia more than 6% in February alone.

But the mood may sour because Indonesian refiners have been offering discounts and taking business away from Malaysian competitors, with last year's cut in processed palm oil export taxes and high supply boosting margins.

“Although the demand for processed palm oil will be bullish in 2012, the Indonesians have a price advantage of at least US$100 per tonne for refined palm oil in terms of cost of production,” said Mohammad Jaaffar Ahmad, chief executive of the Malaysian Palm Oil Refiners Association.

“In the beginning of this year, we have received reports from our members that Indonesia is offering a US$55 discount per tonne in Pakistan and about US$40 discount in India,” he said.

That could lead to a drop in refining run rates in Malaysian plants as orders shift to Indonesia, which may see investors at the conference discuss building refineries in a country where two credit rating hikes have lifted it to investment grade.

Malaysia is not the only one feeling the heat.

Refiners in India, the world's top edible oil buyer, also fear a hit as traders buy more processed Indonesian palm olein that is only US$15US$20 more expensive than the crude grade, with a weak domestic crop spurring imports.

“The import mix is now 40% olein and 60% crude palm oil. Previously it used to be 15%20% olein and 80% crude palm oil,” said Ashok Sethia, president of the Solvent Extractors Association of India in Mumbai. - Reuters

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