-  Last week, Indonesian presidential candidate Joko Widodo said that he plans to keep an export ban on mineral ores and a moratorium on plantation expansion.

-  The moratorium will be imposed on plantation land, which faces tax or social problems and those that are ecologically unsustainable. Widodo also plans to limit expansion of land bank by large companies. Currently, there is a proposal, which caps ownership of plantation land bank at 100,000ha per company.

-  Reuters quoted sources as saying that India’s new government will not raise duties on palm oil in the short term. This is in spite of lobbying by domestic refiners.

-  There will not be a duty hike as the Indian Budget is due to be tabled in the first half of July. Also, there are concerns that a rise in import duty will increase inflation rate.

-  The European Central Bank reduced interest rates last week to alleviate the threat of deflation. As a result, the Euro is expected to weaken, which may result in imports being more expensive.

-  In spite of this, we believe that exports of Malaysian palm oil to Europe would not be adversely affected. Most of palm oil purchases in Europe are from Malaysian companies, which have operations in Netherlands. In addition, any erosion in margin from the weaker Euro versus Ringgit would be offset by the cheaper cost of feedstock i.e. palm oil.

-  The largest buyer of palm oil in Europe is Netherlands, which accounted for 9.1% of Malaysia’s palm oil exports from January to April 2014. There are a few palm oil refineries in Netherlands, including those owned by IOI Corporation and Sime Darby.

-  IOI’s palm oil refinery in Netherlands has an annual capacity of 1.2mil tonnes while Sime Darby’s plant has a fractionation capacity of about 450,000 tonnes per year.

-  Countries in the European Union accounted for 13.3% of Malaysia’s palm oil exports in the four months of the year. After Netherlands, Italy was the second largest buyer of Malaysian palm oil products, accounting for 1.1% of exports.

-  Finally Biofuels Digest said that Pertamina has issued a tender for 1.7mil kilo litres (600,349 tonnes) of biodiesel to supply part of the 5.3mil kilo litres (1.9mil tonnes) required for 2014/2015. In spite of issues with the pricing formula during the last two tenders, the pricing formula is still the same for the current tender. The tender seeks to supply biodiesel for remote areas such as Kalimantan and Papua. 

Source: AmeSecurities