Three Options on How to Reduce High Palm Oil Stocks

DOMESTIC upstream oil palm players and regulators are now facing a tough challenge on how to address the extremely high palm oil stocks situation in the country.

For the past four months, stocks had surpassed the two million tonnes mark, which is above its normal level of between 1.3 and 1.5 million tonnes. The latest figure released by the Malaysian Palm Oil Board saw palm oil stocks in November climbing to a record high of 2.56 million tonnes.

More significantly, the high stocks have put a dent on the price of crude palm oil (CPO) lately, trading at the RM2,280 to RM2,300 per tonne range, down by 28% so far this year.

Hence, towards tackling the depressing situation and stabilising the CPO price in the global market, the Government is now looking at speeding up the nationwide coverage of its B5 programme (blending of 5% biodiesel with 95% fossil fuel) programme and later push for the migration into the B10 programme.

The B5 programme, for example, is targeted to take up 500,000 tonnes of CPO annually from the domestic stocks.

According to Plantation Industries and Commodities Minister Tan Sri Bernard Dompok late last week, the implementation of B10 programme is envisaged to take up about one million tonnes annually.

On the flip side, however, some industry observers are questioning whether Malaysia is being too ambitious with its B10 programme, especially when the B5 programme still has yet to fullfil its obligation to take up the targeted half a million tonnes of CPO from the market.

Having said that, there are some quarters including biodiesel players who support the idea that B5 programme is going to be a success once it hits nationwide the earliest by late 2013 or early 2014.

This literally means that the targeted 500,000 tonnes to be supplied by biodiesel players can only materialise one to two years down the road.

Another solution, which may seem rather extreme to some quarters, is by way of burning the oil for power generation purposes, a move that was taken back in 2001 to reduce the bloated palm oil stocks in the global market. It is believed that Sabah will be among the earliest to adopt this measure if the local palm stocks situation continues to worsen.

The latest solution and perhaps the most interesting is the lower CPO export duty regime to be introduced on Jan 1 next year by the Government starting from 4.5% to 8.5%, which has been unchanged at 23% since 1970s.

Some quarters opined that the lower export duty would be able to provide an export outlet for the build-up of CPO stocks in Malaysia. This would also mean upstream players and millers will likely take advantage of the new export duty by trying to export as much CPO stocks as possible, especially in January next year.

Hopefully, by February or March, the stocks situation would normalise and the CPO price climbs to a more stable ground at RM2,800 to RM3,000 per tonne by first quarter of 2013.

  • Deputy news editor Hanim Adnan, who is against the idea of burning CPO for power generation, looks forward to a recovery in CPO prices early next year.

  • Source : The Star
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