Malaysia's palm oil exports for the rest of 2011 will be flat at best with a negative outlook for next year as refiners are at a price disadvantage after No 1 producer Indonesia slashed refined palm olein export taxes, a top industry official said.

Palm Oil Refiners Association of Malaysia (PORAM) chief executive Mohammad Jaaffar Ahmad said Indonesia's tax change from Sept 15 will cut production costs for Indonesian refiners, who could enjoy a price advantage of US$72-US$129 a tonne.

While No 2 producer Malaysia does not tax its processed palm oil exports, its costs have risen due to tight crude palm oil supplies that it usually supplements with imports from Indonesia.

With Indonesia more than halving its refined palm oil export taxes and keeping crude palm oil taxes virtually unchanged, more of the edible oil will get channeled to its plants, limiting supply for Malaysia and raising feedstock costs.

"The new Indonesian duty differential is a final wake up call for Malaysia to re-look at our export policy," Mohammad told Reuters in an interview yesterday.

"We do not have the luxury of time to wait before we lose all our market share that we have built over the years," he added.

Malaysia for years has dominated the refined palm oil market that has centred mostly around China - the world's second largest buyer of vegetable oils after India.

Refiners have to shut down

According to Malaysian Palm Oil Board data, refined palm oil exports in 2010 made up 70 percent of total shipments at 16.6 million tonnes.

Indonesia's processed palm oil exports stood at 43 percent from a total of 15.6 million tonnes.

For now, Malaysia's high export tax for crude palm oil will ensure no short-term shutdown in refining capacity, which stood at 22.9 million tonnes by end-2010, Mohammad said.

But Malaysia enforcing its annual duty-free palm oil export quota that this year was set at 3.3 million tonnes for selected planters will squeeze supply - a situation that could worsen in 2012 if the policy continues.

"Based on the above scenario, we do not discount the possibility of much smaller capacity refiners having to shut down as they may not be able to operate at the minimum capacity to be profitable," Mohammad said.

"There will be another shake-up in the refining industry as we will be competing for a limited supply of local crude palm oil."

PORAM, which represents the interests of refineries belonging to firms like IOI Corp, Sime Darby and KL Kepong, has held talks with the government over the issue although no decision has been made.

"With almost 70 percent of the Malaysian palm oil market at stake, the government will have to react fast to save RM60 billion worth of industry," Mohammad said.

- Reuters