Indonesia, Malaysia to stem falling palm oil prices

JAKARTA: (Reuters) -- INDONESIA and Malaysia, the world's dominant palm oil producers, are in talks to form a joint body that will seek to support prices by reducing stocks and controlling supplies of the edible oil, governent trade officials said yesterday.

Malaysia and Indonesia together account for about 90 per cent of the global palm oil supplies, of around 40 million tonnes.

Trade and commodities ministers discussed bilateral proposals for palm oil at a meeting on Monday, and floated the idea of limiting plantation expansion and stepping up industry and biofuel use.

Although no decisions have yet been made, Indonesia's Trade Minister Gita Wirjawan said future cooperation would be similar to that already in place for the region's rubber industry.

"We will sit together to discuss our action to drive the palm oil price," Gita told reporters yesterday. We are looking for bilateral cooperation on this issue. It may be similar to what we have done on rubber."

The International Tripartite Rubber Corp (ITRC) and the International Rubber Consortium (IRCo), which groups senior government officials from top producers Malaysia, Thailand and Indonesia, meet regularly to discuss how to help the industry.

Benchmark Malaysian palm oil futures edged up yesterday to close at RM2,438 per tonne, supported by the prospect of a possible export tax change in Malaysia, after having slipped to a near three-year low of RM2,255 per tonne last week on concerns over rising stocks and slowing demand.

One analyst was sceptical on how far the two countries would cooperate, since they have to compete for customers. "I'm in two minds about this," said Abah Ofon, a commodities analyst at Standard Chartered in Singapore. If they do come together in a genuine fashion to get more involved in the market, it's going to be a tad more effective than what happened with the rubber industry."

Attempts to boost rubber prices by the three top producers are often fragmented because the issue is very political in Thailand, while Malaysia is a small producer even though it is a leading consumer.

"Even in the short-term, if they do decide to have a stranglehold on the market, they can," added Ofon. "But I'm not entirely sure about how well they can cooperate, given the fact that they are competing markets."

Indonesia moved last year to cut export tariffs on refined palm oil, boosting margins for domestic processors and undercutting downstream competitors in Malaysia and buyers in India.

Late last week, Malaysia delayed a decision on a proposal to cut crude palm oil export taxes to between 8 and 10 per cent from 23 per cent.

Both countries say working together on joint palm oil export-tax proposals is not on the agenda, but that both governments are due to meet for further talks within two weeks.

"There are several options for Indonesia-Malaysia palm oil cooperation," added Deddy Saleh, director general of foreign trade at the Indonesian trade ministry. We can implement plantation replanting for old oil palm trees," he said. "We also can increase biofuel usage through government subsidies."