PUTRAJAYA: Malaysian commodities such as palm oil, tin and rubber play such a central role in the global economy that their prices are likely to hold up even in a global slowdown, Plantation Industries and Commodities Minister Tan Sri Bernard Dompok said last Thursday.
Chinese imports of palm oil are set to rise next month as buyers are stocking up, he said. Financial markets have fallen in recent days on concerns that an unfolding debt crisis in the US and Europe will stall global economic growth and slow demand for commodities.
"There will be some impact, but Malaysian commodities are key to this global market. Without rubber the auto industry cannot move, and the same be said with palm oil for the food sector and tin for manufacturing," Dompok said in an interview
"In fact, we see palm oil demand increasing in September as Chinese importers stock up ahead of the mid-autumn festival and a week-long national holiday in October," he said.
Palm oil prices are currently hovering around RM2,950 to RM3,000 - levels that Dompok expects will persist for this year. Benchmark Malaysian palm oil futures tumbled almost 2 per cent last Thursday after Indonesia changed its export tax structure for palm oil, making shipments from the world's No.1 producer more competitive.
Malaysia, the second-largest producer of the edible oil, has a strict export quota for crude palm oil (CPO), because the government wants to encourage the development of high-value refined products and oleochemicals. Producers that do not have a licence to sell CPO overseas are often highly taxed. Exports of refined products enjoy tax-free status.
Malaysia's CPO exports have risen above 250,000 tonnes a month for the past three months, fuelling speculation that its annual three million tonne quota will be breached.
"We can be flexible (on export quotas) as we want to keep the industry market-driven, bearing in mind that CPO is in high demand in Rotterdam," Dompok said.
He ruled out scrapping the quota on CPO exports, a view shared by market players in Malaysia who are concerned about losing market share to Indonesia, which has slashed its export taxes for refined products.
"The race is on to develop high-end refined products," said a dealer with an international trading house in Kuala Lumpur. "Malaysia understands the need to bend to market pressures with CPO demand in Europe and India, but it is aware that Indonesia wants to catch up in the refining sector with the recent export tax changes."
Malaysia has developed its palm oil sector at the expense of the rubber industry, which has fallen to third place among the world's largest suppliers.
Flagging output as farmers switch to lucrative palm oil has forced Malaysia's large rubber products industry to import. Dompok said efforts were under way to ramp up rubber production with a replanting programme and to expand current acreage by 14 per cent over the next five years to 1.17 million hectares.
"We are taking a long-term view on commodities, whether its rubber or palm oil," Dompok said.
"Although the current economic growth issues and their impact on prices are immediate concerns, we have to think far, far ahead on growing the industries." - Reuters