Market Intelligence Crude Palm Oil 17th January, 2013

Market Intelligence

CPO prices in the domestic markets remained steady paring recent gains as speculators offloaded their positions, taking negative cues from overseas. In international markets, Palm Oil declined on concerns that inventories may stay near record levels as exports dropped and India imposes to tax imports to protect local growers. CPO in futures market eased from recent highs due to a lack of buying momentum and concern about Refined Palm Oil shipments to China.

CPO prices fell immediately after India imposed a 2.5% import tax on Crude Edible Oils in a bid to protect its farmers against a surge of cheap imports. Investors turned bearish on Palm Oil after India's import tax announcement on concerns that this could slow export demand and keep Palm Oil stockpiles near record levels. Malaysian Palm Oil stockpiles at end-December reached an all-time high. Still, some traders are hopeful that India's tax imposition may not be completely negative for Malaysia. Palm Oil prices tumbled from highs as inventories in Indonesia and Malaysia surged because of low demand amid an economic slowdown in China and Europe. Investors locked in profits after steady gains in prices. Traders also took cues from hints of recovering demand from major buyers as temperatures become warmer and more suitable for Palm Oil.

Indian government has decided to lift a freeze on the taxable value of Edible Oils including CPO. India will revise the base price used to calculate import taxes for CPO on a fortnightly basis now onwards as result of this revision. The current base price for CPO is unchanged from last six years. The Cabinet has approved to de freeze the tariff values of all Edible Oils including Palm Oil & Soy Oil and notify their tariff values on the basis of their prevailing international prices. An alignment of notified tariff values with international prices will have a positive impact on the duty collected from import of Edible Oils and will provide an even field to the domestic refining industry.

Indonesia, will not change its export tax structure for the Edible Oil or follow rival producer Malaysia by cutting tariffs on crude grades to zero. The Malaysian tax changes were aimed at clawing back market share from Indonesia. Rising inventories would increase pressure on Indonesia to cut its export tax to compete with Malaysia. If the government cuts the export tax, it will definitely help boost shipments. Attempts by Indonesian exporters to cut reserves are hampered by the zero tariff in Malaysia, causing inventories to stay high.

Palm Oil is expected to rebound, as investors likely to square off riskier positions ahead of the weekend. However, in longer view traders are still cautious on concerns of stock piles.

News For Use

JPMorgan cut its Palm Oil price forecast by 10 % to 2,600 Ringgit a ton for 2013-2014 from 2,900 a ton earlier, citing an overhang of inventories.

Vietnam is considering putting emergency import tariffs on Soy Oil and Palm Oil to prevent a flood of imports damaging its own producers. Under WTO rules, countries may temporarily impose such tariffs known as "safeguard measures" if they can show that there is a serious threat to domestic producers.