Export duty on CPO soon

KUALA LUMPUR: Malaysia will set a 5% export duty on crude palm oil (CPO) beginning next month following 11 months of zero duties.

“This should help to increase the refining activities and margins, as more CPO supplies will flow into refineries before being exported overseas. We retain our ‘overweight’ call on the sector.
“Our preferred exposure is the upstream plantation players, namely, Genting Plantations, Ta Ann, TSH Resources and TDM,” PublicInvest Research said.

The research house explained that as CPO price averaged at RM2,500.34 per tonne over the last one month, which surpassed the threshold for CPO tax of RM2,250 per tonne, there was a CPO export tax of 5% or about RM125 a tonne imposed on upstream players next month if they export CPO directly.

“We believe that the upstream players will channel their CPO production to local refineries to avoid paying the CPO export duty. There will be some bargaining room for the RM125 per tonne tax gap between crude and refined palm oil producers,” it added.

It opined that the wider tax gap between crude and refined palm oil would give refiners some incentives to ramp up utilisation rate, which had fallen below 50% year-to-date.

PublicInvest believed that the refinery utilisation rate would likely improve to at least 70% in the coming months due to the re-introduction of CPO export duty.

Local oleochemical and specialty fats producers should also benefit from the competitive prices as margins improved. Currently, processed palm oil makes up 66% of total CPO exports.

“Based on the additional margin of RM125 per tonne for the local refiners, we estimate that it will narrow the differential margin between Malaysian and Indonesian refiners closer to about RM15 a tonne or less.

“Given a more competitive pricing, we believe processed CPO export volume should increase with downstream players regaining their market shares based on the latest CPO export tax changes,” PublicInvest said.

The research house believed CPO prices would fare better this year in anticipation of improved export volume coupled with weaker production in the coming months.

“We expect CPO prices to trade above RM2,800 per tonne once inventories fall below two million tonne psychological level,” it added.