Malaysia refiners call for common palm oil export duty plan with Indonesia

KUALA LUMPUR: Malaysia should work towards a common palm oil export duty plan with Indonesia to support its refining sector, which risks losing market share following the introduction of more competitive Indonesian levies, a Malaysian industry body said.

Refiners in top palm producer Indonesia enjoy an advantage as the country's levy on refined palm product exports is lower than its $50-a-tonne levy on crude palm oil (CPO) shipments. This should help keep more CPO at home, dragging down domestic prices and improving downstream margins.

"There is a real possibility of Malaysia losing market share to Indonesia because Indonesia's differential palm oil duty structure is supporting its downstream industry," the chief executive of the Palm Oil Refiners Association Of Malaysia (PORAM), Mohammad Jaaffar Ahmad, told Reuters.

Malaysian refiners enjoy no such advantage with taxes for crude and refined palm oil exports at zero. Support for them will dwindle further as the country's shipments tilt in favour of CPO to make up for any gap in Indonesian supply.

Malaysia currently has a 27-million-tonne palm oil refining capacity. Mohammad expects another 5.8 million tonnes to be built, mostly in East Malaysia. Indonesia had an estimated capacity of 47 million tonnes in 2014.

Meanwhile, palm oil stocks have risen, up 27 percent year-on-year in October to 3.025 million tonnes in Indonesia and to a 15-month top of 2.83 million tonnes in Malaysia.

The two countries, which account for 85 percent of the global palm oil output, have recently signed up to a joint council to manage stock levels, create demand through biodiesel mandates and stabilise palm prices that hit a 6-1/2 year low this year.

"We are for the Council of Palm Oil Producer Countries if both countries can agree on a long-term solution on the palm oil export tax structure and do not resort to any unilateral decision that might affect the other country's competitiveness," Mohammad said ahead of an industry conference in Indonesia.

However, the Indonesian Palm Oil Association has said the new council would not seek to form joint or unified taxation schemes between the two producers.


For the council's stock management plan to be successful, Malaysia needs a higher biodiesel mandate like Indonesia, Mohammad said. Palm oil is used for blending into biofuels.

Indonesia has raised its minimum bio content in diesel fuel used for transport to 15 percent from 10 percent. This is expected to rise to 20 percent in 2016 and 30 percent in 2020.

Malaysia had planned to increase its mandate to 10 percent by October, from 7 percent.

"It will be more effective if the biodiesel mandate is based on a minimal mandate...let the industry increase the blending mandate based on the economic viability of the biodiesel cost and demand structure," Mohammad said. - Reuters

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