- There were three interesting developments last week, which we have not highlighted. First, Wilmar International is planning to build a palm oil refinery in East Kalimantan by the end of the year.

- Second, palm oil refiners in India are reported to be under pressure as more buyers are switching to imported refined palm oil instead of domestic supplies. Finally, independent cargo surveyors reported that palm oil shipments from Malaysia rose 4.2% to 5.3% MoM in July.

- According to the Jakarta Post, Wilmar is planning to build a palm oil refinery with a capacity of 2,500 tonnes/day or 912,500 tonnes/year by the end of the year. The cost of the refinery is estimated at US$25mil to US$30mil. This is Wilmar’s first refinery in East Kalimantan.

- The refinery would be sourcing CPO mainly from Wilmar’s palm oil mills. We are unsure if the refinery is part of Wilmar’s new refining capacity of 3.5mil tonnes/year, which started coming on-stream in Indonesia from late-2012 onwards.

- By setting up the refinery in East Kalimantan, a company official said that Wilmar will be able to cut the time and costs incurred in transporting CPO to its plant in Gresik.

- In India, it was reported that the spread between imported refined palm oil and CPO has narrowed from US$40/tonne to US$5/tonne. This is partly due to the export tax structures in Malaysia and Indonesia, which favour refined palm oil products instead of crude.

- Due to the thin spread, domestic palm oil refiners in India are currently operating at utilisation rates of 30% to 35% versus 50% previously. A few refineries have shut down operations. The risk from this development is that the Indian Government may increase the import duty on refined palm oil products, which would hurt palm oil exports from Malaysia and Indonesia.

- So far, there has not been any indication on the hike in import duty. Recently, India’s Food Minister said that the import duty on refined vegetable oils would not be increased immediately.

- SGS reported that China bought 6.2% more palm oil from Malaysia in July compared with June. This coupled with a 6.7% to 13.6% increase in demand from the European Union and India helped compensate for a 15.7% to 21.0% fall in shipments to Pakistan and the US.

Source: AmeSecurities