UPDATE 1-Malaysia exempts crude palm oil from tax to boost export demand

Thu Sep 4, 2014 8:57am EDT

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KUALA LUMPUR, Sept 4 (Reuters) - Malaysia will exempt crude palm oil from export taxes in September and October to reduce stockpiles of the tropical oil after prices fell to five-year lows.

The exemption from duties, which had been set at 4.5 percent for September, is expected to increase palm oil exports by 600,000 tonnes over the two months and reduce stock levels to 1.6 million tonnes by the end of the year, the commodities ministry said in a statement.

"The industry requested we extend this to December. We'll assess this as we go along," Douglas Uggah Embas, Malaysia's commodities minister, told a news conference.

He also said the cabinet would decide this month whether to bring forward to Dec. 1 plans to impose a requirement for biodiesel to use 7 percent palm oil, from 5 percent now. Its previous commitment had been to introduce the new blend by the first quarter of 2015.

Malaysian palm prices, which set the tone for global prices, plunged 14.5 percent in August, the biggest monthly fall since September 2012, hurt by expectations of bumper crops of competing oilseeds as well as a pick-up in Southeast Asian palm output.

Stockpiles in Malaysia, the world's No.2 producer of the tropical oil, stood at 1.68 million tonnes at the end of July, and are expected to hit a seven-month high at end-August as production outstrips global demand from key consumers.

"If there is no action to address this trend, we are expecting further declining prices until the end of the year with average prices between 2,200-2,280 ringgit ($692.5-$717.7) per tonne," the ministry said in the statement.

Both Malaysia and neighbour Indonesia, the world's biggest palm oil producer, set export taxes on a monthly basis.

Malaysian palm oil rose for a third consecutive session on Thursday to a one-week high of 2,033 ringgit. ($1 = 3.1770 Malaysian ringgit) (Reporting by Trinna Leong and Anuradha Raghu,; Editing by Stuart Grudgings and Michael Urquhart)

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