THE re-imposition of Malaysia’s export tax on crude palm oil (CPO) at 4.5% this month after its suspension since September last year, is seen as a mixed blessing by local palm oil industry players.
Palm oil refiners, whose margins are mostly affected by the zero duty on CPO exports imposed seven months ago have plenty to cheer about by this latest turn of event.
Refiners have been experiencing negative processing margins due to the insufficient CPO supply by upstream plantation players, which have been taking advantage of the zero duty to push for more CPO exports.
“Many refiners have to operate below optimal refining capacity to cut their losses.
“But the re-imposition of a 4.5% CPO export tax will see more upstream planters channelling back their CPO output to local refiners just to avoid the export tax,” says a palm oil refiner with a local plantation company.
Malaysia’s multi-tiered CPO export tax which is introduced in 2013, is reviewed on a monthly basis.
Under the domestic CPO export duty structure, the CPO exports will be taxed from 4.5% onwards when the CPO gazetted price is higher than the RM2,250 per tonne threshold price.
According to analysts, key beneficiaries to the resumption of CPO export tax this month will include big-cap plantation companies with exposure in the downstream operations such as Sime Darby Bhd , Felda Global Ventures Holdings Bhd , IOI Corp Bhd and Kuala Lumpur Kepong Bhd (KLK).
Planters with the largest downstream exposure earnings-wise are KLK and IOI Corp although earnings growth may be minimal due to low downstream margins, compared with the upstream business.
To date, the local palm oil refining industry is worth RM2.9bil, with a total of 58 refineries operating in Malaysia, including Wilmar International Ltd, FGV, Mewah Group, Sime Darby and IOI Corp.
On the other hand, some quarters have raised concern that Indonesia may turn out to be more competitive in exporting CPO in April as “its export tax for CPO still remains at zero against Malaysia’s 4.5%.”
The return of Malaysia’s CPO export duty could place a downward pressure on domestic CPO exports from April onwards.
Palm oil exports has been on the downtrend over the past five months even with zero duty on export, according to industry observers.
Local palm oil exports fell 18.4% to 971,640 tonnes in February this year – the lowest since 2007 – from a month earlier, following lower demand from major importers China, Pakistan, the European Union and the United States, says the Malaysian Palm Oil Board.
The US Department of Agriculture’s (USDA) Kuala Lumpur bureau also reported that Malaysian palm oil exports will show a rare decline next season, undermined by “stagnant” yields at the country’s oil palm plantations, and increasing domestic use of the vegetable oil for making biodiesel.
“Despite an anticipated increase in mature harvested area in 2015-16, stagnant yields are forecast to result in only a marginal increase in palm oil output,” the bureau said, pegging production this season at 20 million tonnes, some 500,000 tonnes below the official USDA estimate.
“Due to varying management, inconsistent inputs, and unreliable labour supply, yields are stagnant and not expected to increase significantly.”
Malaysia’s own consumption of palm oil will hit a record 2.94 million tonnes, as the Government moves to fully implement new biofuel legislation.
Meanwhile, CIMB Research’s latest survey of 21 planters suggests that Malaysian palm oil output in March is expected to increase 14.5% to 1.28 million tonnes from a month earlier.
Palm oil stock is estimated to be at an eight-month low of 1.71 million tonnes, which is supportive of the CPO prices in the near term.
Currently, the three-month benchmark palm oil futures contract for June is trading between RM2,170 and RM2.191 per tonne.
“We expect the lower output and average CPO price in the first three months of 2015 to lead to poor results from oil palm planters in the first quarter this year.
Export demand in March is also set to improve by about 18% due potentially to a rush to exports ahead of the imposition of a 4.5% export tax on CPO this month.
The MPOB is expected to release the actual March palm oil statistics next Friday.