Wilmar - oil diesel

Malaysian CPO futures jumped 3.7% on Mon on news that Indonesia plans to hike its export tax on CPO up to 25% from the current 10%. The benchmark Apr contract shot up 113 ringgit to end at 3,345 ringgit (US$1,039) a tonne, which is just 2% off the record high of 3,420 ringgit.

The move is part of new government measures unveiled on Fri to contain rising prices of staples, targeting palm oil-based cooking oil, wheat flour, rice and soybeans.

With the market anticipating a draw-down in palm oil stocks as a result of any increase in Indonesia's export tax on palm oil products, palm oil prices rallied from 3,232 ringgit a tonne at the end of morning trade to an intraday high of 3,353 ringgit by the afternoon, when news of Indonesia's tax hike plans broke.

"An increase in Indonesian export taxes would result in the country exporting less CPO. Malaysia should then export more of the oil to meet market demand, but it has fallen behind Indonesia in palm oil output and is unlikely to be able to keep up with any increase in demand," said a S'pore-based trader.

Total palm oil stocks are estimated at 1.78 million tons, down from an all-time high of 1.82 million tons in Nov.

"Production is unlikely to increase as output usually begins to tail off from Feb as part of the palm oil seasonal decline, and this is likely to continue to put pressure on prices," said a Malaysian trader.

Indonesia plans to raise its export tax on CPO and its derivatives to as much as 25% if global palm oil prices hit US$1,300 a metric ton, a senior government official said Mon.

Another tax rate of 20% would be levied when global palm prices hit US$1,200, said Bayu Krisnamurthi, a deputy to Indonesia's chief economic minister.

Indonesia announced Fri it would raise its export tax on CPO to 15% if global palm prices exceed US$1,100/ton. The current rate stands at 9%-10% for CPO and its derivatives.

Strong soyoil gains in after-hours trading were also supportive of palm oil prices, but trade was noticeably thin ahead of the Chinese New Year holidays. US soyoil futures on the Chicago Board of Trade rallied to an all-time high of over 56 US cents a lb, brushing off the negative input from a drop in crude oil prices and focusing on strong export weekly sales tally.

Traders said palm oil is still being sold at a heavy discount to soyoil, leaving a lot of room for palm oil prices to catch up. Any rally in soyoil prices would also create an upward trend for palm oil prices, as they are substitutes for each other.

"Palm olein is now trading at a discount of around US$160 to soyoil. Usually, the discount would not be more than US$70," said the S'pore-based trader.

Traders said the market was more concerned with export trends with expectations that palm oil shipments will rise after the Chinese New Year holidays as China will have to replenish a significant stock draw in edible oils.

"Exports might be slow now but buying nations are delaying purchases till the price goes low," said a local palm oil broker who sells to China.

He added:"But in mid-Feb, these delays cannot be sustained and there will be huge buying regardless of the price and a drawdown in palm oil reserves."

Exports dwindled last month, with Intertek Testing Services and Societe Generale de Surveillance reporting declines of up to a third to roughly 1 million tonnes.

And Malaysia's Jan palm oil stocks are likely to rise 8.2% to 1.82 million tonnes, the highest in at least 25 years as exports fall sharply on record high prices, a Reuters poll showed last week.

(US$1=3.2285 ringgit)