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Analysts divided over palm oil prices

KUALA LUMPUR; Analysts were divided at the weekend over the direction of palm oil prices which have stayed weak since last year.

An Indian industry official said a further increase in India's import duty on palm olein would lead to lower prices.

"The possibility of higher import duties at any time is a sword hanging over the price level of olein," Dorab Mistry, a director at Godrej International Ltd, told a palm and lauric oil conference in Malaysia's capital.

India used to have an import duty of 16.5 percent on both refined and unrefined edible oils.

In December, it raised the levy on refined oil alone to 27.5 percent.

In February, it said a special additional duty of four percent would apply on palm oil imports.

When calculated on the gross cost of the material, import duty and surcharge, this brought the tax on palm olein to a total of 32.6 percent.

Olein, mostly imported from Malaysia, forms the major part of India's edible oil imports. Soft oils including sunflower, soya and rape make up the rest.

Indian Finance Minister Yashwant Sinha has said his ministry had authority to raise duties to as high as 100 percent for refined oil.

Analysts read the move as a strong attempt to cut back imports of particularly palm oil products and protect domestic oils industry, affected by an influx of foreign purchases.

Mistry said if Sinha's caution was to be taken seriously, the duties could go to as high as 50 to 60 percent.

If it went to 50 percent, palm olein prices would have to decline to $280 a tonne FOB, Mistry said.

March palm olein was offered from Malaysia at $332.50 a tonne FOB on Friday.

Mistry noted that olein suffers an import duty disadvantage of 15.5 percent compared with other crude soft oils in India.

India has a refining capacity of over three million tonnes for edible oils.

Mistry said he expected palm oil to increase its share of India's imports to 77 percent this year from 65 percent.

But he said the market share would diminish if the FOB price of olein did not remain equal to or $10 below the price of crude soybean oil.

"From May-June it will be an uphill struggle for RBD olein to hold on to its Indian market share," he said.

Malaysian palm oil accounted for the bulk of India's palm oil imports last year with the remainder supplied by Indonesia.

Rising production and huge stocks in Malaysia are keeping a lid on prices. The Palm Oil Registration and Licensing Authority recently forecast Malaysian palm oil output to reach a record 10.95 million tonnes this year, up from 10.55 million in 1999.

But Thomas Mielke, editor of Hamburg-based newsletter Oil World, believed palm oil prices were undervalued and had a considerable upward potential.

"My tentative expectation is that palm oil prices have an upward potential of $30-$40 in the next one to three months, and of $80-$100 until December 2000," he told the conference.

He said his projection was on the assumption of normal weather in key Asian palm production regions and in the major oilseed growing areas of the Northern Hemisphere this summer.

Mielke said subsiding supply pressure from palm oil and other oils and fats, coupled with the strong world demand, would remove the oil supply surplus in the next two to four months.

"I doubt that at the current price, we will be getting enough supplies over the next 12 months, enough supplies to cover the strong demand which is rising at a fast pace at the current price," he said.

Derom Bangun, chairman of the Indonesian Palm Oil Producers Association, said prospects of a slightly lower supply than demand in the second quarter of the year would maintain the mild increase in prices.

"The upward trend will slowly bring the price to the level of $400 per tonne CIF Rotterdam," he said.

On Friday, crude palm oil was offered at $345 a tonne CIF for April/June.-Reuters