KUALA LUMPUR: The Plantation Industries and Commodities Ministry, which had set crude palm oil (CPO) export tax for September and October at zero per cent in a bid to trim domestic stocks, expects prices to be stuck in a tight range between RM2,200 and RM2,280 per tonne for the rest of the year.

“CPO is expected to register higher prices in 2014 contributed by positive economic growth in major importing countries,” Plantation, Industries and Commodities Minister Datuk Amar Douglas Uggah Embas told The Edge Financial Daily in an email interview.

CPO peaked at RM2,855 per tonne in March. However, prices have since come 32% off the peak to hit a five-year low of RM1,933.50 per tonne on Sept 2. Prices closed at RM2,170 per tonne for the benchmark December contract last Friday.

On news reports that Malaysia, the largest palm oil producer after Indonesia, could extend duty-free exports beyond October, Uggah declined to answer, saying his ministry will continue to monitor the CPO price trends in the current quarter.

“In addition, the views of the industry will be factored in the decision-making process,” he said.

Uggah added that his ministry, together with the Malaysian Palm Oil Board, had been constantly monitoring the CPO price trends in 2014.

“This is taking into account the slower economic growth reported in major importing countries in 2014 and the production of soya bean oil, which is a major competitor to palm oil.

“In addition, the ministry had consulted the major industry players on measures to strengthen palm oil prices, as well as reduce domestic palm oil stocks. This is against the backdrop of among others, higher palm oil production season in the third quarter of 2014 and the need to strengthen exports,” he said.

Uggah said his ministry hopes that with the current tax structure, exporters will take the opportunity to increase their exports, particularly those who have joint venture refining facilities abroad. “This will contribute towards reducing domestic stocks of palm oil in view of the peak production season in the third quarter of 2013.”

The move seems to be effective. Based on data, exports of CPO in Sept 1-10 rose 3.8% to 81,941 tonnes from 78,894 tonnes in the same period a month before.

Still, the move is reportedly frowned upon by palm oil downstream players via the Palm Oil Refiners Association of Malaysia (PORAM) as they said it lowered the industry’s competitiveness and reduced national revenue. This is especially so after PORAM has long fought for the introduction of a new export tax schedule.

“The ministry needs to consider the views of all the stakeholders in the industry to ensure long-term resilience of the palm oil industry. The duty-free exports of CPO announced for September and October is a short-term measure to reduce domestic stocks and subsequent pressure on prices.

“The ministry will continue to discuss with the relevant stakeholders including the refining sector to explore measures to strengthen the competitiveness,” said Uggah.

The government had also made available a total of RM116 million, which is provided as grants under the National Key Economic Area, to encourage refiners to venture into high value-added palm-based products.

“This will in the longer term further strengthen the competitiveness of the refining sector, as well as contribute towards increasing the export value of palm-based products,” said Uggah.

Meanwhile, Uggah said his ministry targets to implement the country’s own certification of sustainable palm oil called Malaysian Sustainable Palm Oil (MSPO) beginning January, which will be voluntary at the initial stage.

“The principles and criteria under the MSPO have been finalised and field trials have been completed.

“In addition, to facilitate the implementation of MSPO, the Malaysian Palm Oil Certification Council is being established,” he noted.

This article first appeared in The Edge Financial Daily, on October 7, 2014.