Indonesian crude palm oil prices had a firmer bias on Tuesday, underpinned by a weakening rupiah currency and despite the impact of Malaysian prices retreating from a record high. Cooking oil prices were depressed, however, amid uncertainty over tax subsidies.
The state marketing centre in Jakarta sold crude palm oil at 8,251 rupiah ($0.878) a kg, barely changed from the ninth record high for auction price of 8,252 rupiah a kg hit on Monday. "Malaysia is down today but the rupiah lost ground against the US dollar which helped offset losses in prices," said an official at the centre.
Crude palm oil prices at the centre have risen more than 50 percent since early this year in line with gains in international prices that were boosted by strong demand from both the food and energy sectors. Producers in North Sumatra's Medan sold crude palm oil at 8,200-8,230 rupiah a kg, up from 8,080 rupiah last week. Producers in Medan, the key port for palm oil exports, did not hold any auctions on Friday and Monday.
Malaysian crude palm oil futures pulled back from a record high as financial players saw the opportunity to sell after the crude oil and soyaoil market eased. The February contract fell 53 ringit to 2,985 ringgit ($884) a tonne on Tuesday.
Palm oil closely tracks movement of crude oil due to growing use of the oils as alternative energy to fossil fuel. The Indonesian rupiah hovered near 9,390 rupiah per dollar after falling as far as 9,406 rupiah per dollar. A softer rupiah against the dollar makes the oils-traded in dollars-cheaper in rupiah terms.
But concerns about the government subsidy on a 10-percent value-added tax for cooking oil sold to the domestic market put pressure on the cooking oil market. Producers offered palm oil-based cooking oils at 7,900 rupiah a kg, down from 7,950 rupiah on Monday. But buyers sought lower prices at 7,850 rupiah.
"Producers are wondering whether the government will keep subsidising value-added tax. In reality, it doesn't help curb local prices because it tracks global palm oil prices," said a cooking oil dealer in Jakarta.
In September, the government subsidised prices of non-branded cooking oil, which is widely consumed by poor families, by paying a 10 percent value-added tax to ease local cooking oil prices. But it has not indicated how long it will keep the subsidies.