Sabah palm oil refiners to impose bigger discount

This is written by my colleague Rupinder Singh.

KUALA LUMPUR: SABAH's palm oil refiners will impose a higher discount to buy cheaper crude palm oil (CPO) beginning next month, a move likely to impact revenues of millers as well as planters in the state.

IJM Plantation Bhd chief executive officer and managing director Joseph Tek Choon Yee said refiners in Sabah want to more than double the existing discount of RM40 per tonne of CPO it gets from millers.

"Beginning September 2012, Sabah refiners are increasing the discount from RM40 a tonne of CPO to between RM80 and RM100 a tonne," Tek told Business Times recently.

It is learnt that Sabah's discounts of RM40 a tonne was a business agreement from before, when oil from there had to be shipped to refineries in Peninsular Malaysia.

"This higher discount is introduced by the refiners and will mean millers get lower sales proceeds. It will eventually cascade down to the planters as well," Tek said.

He said that in such a monopolistic situation the millers have no choice but to accept the "forced" discount. "In a way, if this continues, it will affect us (IJM) as well. We will make less RM40 to RM60 a tonne of crude palm oil that we produce from September onwards," he added.

The new discount to be imposed would translate to a loss of RM8 to RM12 a tonne of fresh fruit bunches effective next month. According to Tek, the additional discount is only imposed by Sabah refiners only.

The refiners' action is a result of Indonesia imposing a duty structure since October 2011 has dragged CPO prices down by lowering export taxes for processed palm oil products. Indonesia's move was put in place to boost its downstream activities but this has inadvertently affected Malaysia's palm oil refining industry as well.

IJM Plantations chief financial officer and executive director Purushothaman Kumaran said it makes no sense for refiners to introduce a higher discount at this juncture.

Just last month, he said, the Government allowed the export of another two million tonnes of duty-free CPO to prevent a build-up in stocks that could weigh on prices. The additional quota was a temporary response to Indonesia's change in its duty structure, which has pressured the competition.

However, he said, the planting industry associations and the government are already looking into the matter.

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