China Must Cut Palm Oil Import Duties -Indonesia Association

China, the world's No.2 vegetable oil buyer, must cut its import duties for palm oil to help boost Indonesian exports which are seen little changed at 2 million tonnes this year, an industry association said on April 28, 2011.

China is the world's top palm oil importer, and analysts say consumption in the world's second-largest economy will rise about 10 percent this year to 7.3 million tonnes.

"Unfortunately, they treat our CPO (crude palm oil) with import tax," Joko Supriyono, secretary general of the Indonesian Palm Oil Association (Gapki) told Reuters ahead of Chinese Premier Wen Jiabao's visit to Indonesia this week.

Chinese import duties for edible vegetable oils is currently 9 percent, and 2 percent for industrial palm oil use. Industrial palm oil imports, for cosmetics and soap, are very small.

"The percentage of import tax for CPO is bigger than the import tax for the derivative product," he added. "They want to protect their domestic industry (and) domestic refineries."

Wen is visiting Malaysia and Indonesia this week to seal a series of agreements covering everything from banking and energy to palm oil and infrastructure.

"The Indonesian concern is that there are so many products that cannot compete with China," Supriyono said.

In early March, benchmark crude palm oil prices rose to a one-week high on speculation about potential Chinese import duty cuts.

Global output for palm oil -- used in products such as food, cosmetics, tyres and biofuels -- was about 45 million tonnes last year, with China importing 5.696 million tonnes.

China is expected to buy around 2 million tonnes of palm oil from Indonesia this year, little changed from 2010, Supriyono said.

"China is now looking for a local partner to develop the downstream industry in Indonesia," Supriyono said.

"(If) Indonesia has a partner from China, then exporters can bring this product to China... rather than directly export with a higher import duty," he said.

Indonesia, the world's top producer of palm oil, is expected to produce 21-23 million tonnes of palm oil this year, having outpaced Malaysia as the top palm oil producer in 2007.

China is also a big buyer of Malaysian palm oil although its imports of the vegetable oil last year fell 12.5 percent to 3.4 million tonnes.

Indonesia scrapped import duties on a number of raw materials and goods this month, including soybean oil, in a drive to boost domestic manufacturing industries.

The government is trying to spur domestic industries to create higher-value exports from a country that is a leading producer of raw materials such as crude palm oil, tin and thermal coal.

Indonesia's palm oil export tax, currently at 22.5 percent, has been criticised by the industry who are lobbying the government for changes.

The palm oil tax aims to ensure domestic requirements are met in Southeast Asia's biggest economy and to reduce volatility in local cooking oil prices.