Indonesia slashing CPO export tax could dent Malaysia’s palm oil sector

September 26, 2014

The Borneo Post. KUCHING: Following Malaysia’s announcement of cutting its export tax on crude palm oil (CPO) to zero for two months, Indonesia has been reported that it would also cut its export tax on CPO to zero in October 2014.

Analysts believe competition-wise, this could negatively impact Malaysia’s palm oil industry.

However, AmResearch Sdn Bhd (AmResearch) in a note highlighted that there is still a silver lining in the industry as palm oil shipments from Malaysia have been positive in the 20 days of September.

“Two independent cargo surveyors reported Malaysia’s palm oil exports rising by 21.2 and 26 per cent compared with the same period in August. According to SGS, palm oil shipments to China climbed 121.7 per cent while India imported 25.8 per cent more palm oil,” it explained.

On the reported tax cut by Indonesia, AmResearch said Indonesia is expected to cut its export tax on CPO to zero by October this year.

“We believe that Indonesia’s actions would not be positive for Malaysian players. Preferential tax rates for Indonesian palm refiners would erode the competitiveness of Malaysian refiners further.

“Zero tax for exports of Indonesia CPO would level the playing field between Indonesian and Malaysian upstream players.”

AmResearch added, based on PT Astra Agro Lestari’s latest auction, the price differential between CPO in Malaysia and Indonesia is RM73 per tonne currently.

“The export tax rate for CPO in Malaysia is zero each for September and October. The CPO export tax is zero in Malaysia if CPO price falls below RM2,250/tonne,” it said.

The research team further pointed out, “In September, export tax rates were nine per cent for CPO and three per cent for refined palm olein. This gives Indonesian palm refiners a tax advantage of six per cent or US$44 per tonne (RM144 per tonne) over their Malaysian peers.”

Jakarta might also be looking at extensive action involving export taxes on refined products, the researchers said.

“Ministry officials are studying a change in the export tax structure to boost their downstream palm oil industry. This is not surprising as refining capacity in Indonesia is expected to rise to 45 million tonnes in 2014 forecast versus its forecast CPO production of 27.5 million to 28 million tonnes,” it explained.

Furthermore, AmResearch stressed the developments in Malaysia and Indonesia might also trigger a reaction from the Indian palm refiners.

“Last year, the Indian refiners complained that buyers preferred to import refined palm oil instead of purchasing them domestically. In response to Indonesia’s and Malaysia’s actions, the Indian refining industry may lobby to increase the import duty on refined palm products. Presently, the import tax rates are 10 per cent for refined palm products and 2.5 per cent for crude palm oil.

“The refiners were lobbying for an import tax rate of 12.5 per cent last year. Finally, buying of palm oil may be delayed as China and India wait for Indonesia to cut its export taxes,” it said.

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