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Malaysia palm oil-Prices sink after India tax move

KUALA LUMPUR: Malaysian palm oil prices have sunk by nearly four percent this week, and traders on Wednesday predicted more losses in the near term after India's move to raise import duty on refined edible oils.

The third-position March palm oil futures contract was down five ringgit at 1,136 ringgit ($299) a tonne at midsession on Wednesday. It earlier hit a low of 1,131 ringgit, a level not seen since August 13, 1999.

"The Indian factor would continue to haunt the market. I'm not surprised if it goes below 1,000 ringgit," a Kuala Lumpur trader said.

A marketing manager with a palm oil refiner said: "It's heading towards 1,100 (ringgit a tonne) and probably 1,000. There's not much support in the market."

India, a major buyer of Malaysian palm olein, last week raised the import duty on refined edible oils to 27.5 percent from 16.5 percent. Such an increase could curb Indian demand for vegoils, traders said.

India was the biggest buyer of Malaysian palm oil in 1999, taking about 2.3 million tonnes or a quarter of the country's total exports, industry sources said.

In December, India bought 234,064 tonnes of refined palm oil from Malaysia, the world's largest producer and exporter.

Strong Indian buying in 1999 followed an oversupply-driven plunge of around 50 percent in Malaysian palm oil prices.

EXPORTS TO PAKISTAN, CHINA SLOWING: Traders said the Indian move came as exports to the other major buyers of Pakistan and China were slowing.

"Exports to Pakistan are expected to ease off with the end of Ramadan, and China is also not buying much," said Nakul Rastogi, an international trading manager at Pacific Inter-Link Sdn Bhd.

Palm oil purchases from Pakistan normally pick up during the Moslem fasting month of Ramadan, which ends this week. The country took nearly 120,000 tonnes of Malaysian palm oil in December.

China recently approved supplementary 1999 import quotas for vegetable oils of about 500,000 tonnes, but traders said additional buying may not come until after the Lunar New Year in February because of the time needed to open letters of credit.

STOCKS AT RECORD HIGH: Traders said the market would face severe pressure when production starts picking up again.

"Right now we are in lean production period. But when output starts to pick up and exports remain slow, prices will be severely tested," Rastogi said.

Malaysia's palm oil stocks at the end of November stood at 1.25 million tonnes, a record high.

Traders said palm oil prices would need to come down in order to compete with soft oils.

"In order to maintain palm oil's market share, prices will have to come off to be in line with soft oils," one trader said.

Malaysian palm olein currently fetches a $35 a tonne premium over soyoil, traders said.-Reuters